Economics: Chapter 7

Front 1

What is Market Structure?

Back 1

Classification system for the key traits of a market

Front 2

What are 4 key traits of a market (think market structure)?

Back 2

1. Number of firms
2. Similarity of products sold
3. Ease of entry into the market
4. Ease of exit out of the market

Front 3

Perfect Competition is characterized by what 3 things?

Back 3

1. Large number of firms
2. A homogeneous product
3. Very easy entry into or exit from the market

Front 4

Perfect Competition is also known as what?

Back 4

Pure competition

Front 5

In perfect competition, the large number of sellers condition is met what what is true?

Back 5

When each firm is so small relative to the total market that no single firm can influence the market price.

Front 6

If a product is homogenous, buyers are what?

Back 6

Buyers are indifferent as to which seller's product they buy

Front 7

What is Barrier to Entry? Examples?

Back 7

Any obstacle that makes it difficult for a new firm to enter a market. Examples: financial, technical, or government-imposed barriers like licenses and permits.

Front 8

TRUE OR FALSE: Perfect competition requires that resources be completely immobile to freely enter or exit a market.

Back 8

FALSE. Perfect competition requires that resources be completely MOBILE to freely enter or exit a market.

Front 9

What are three examples of very close to perfectly competitive markets?

Back 9

Farm produce markets, stock market, and the foreign exchange market

Front 10

What is a Price Taker?

Back 10

A seller that has no control over the price of the product it sells.

Front 11

Are perfectly competitive firms price makers or price takers?

Back 11

Price takers!

Front 12

What is the break even point?

Back 12

Zero economic profit

Front 13

What is Marginal Revenue?

Back 13

The change in total revenue from the sale of one additional unit of output.

Front 14

A perfectly competitive firm faces what kind of demand curve?

Back 14

Perfectly elastic demand curve

Front 15

In perfect competition, the firm's marginal revenue equals what?

Back 15

Marginal revenue equals the price that the firm views as a horizontal demand curve.

Front 16

In perfect competition, a firm maximizes profit by doing what?

Back 16

By producing the output where marginal revenue equals marginal cost!

Front 17

Multiplying ATC by the maximizing level of output is equal to what?

Back 17

Equal to the maximum profit

Front 18

The price is below ATC where MC = MR. Finish the causation chain.

Back 18

Price is below ATC where MC = MR ---> Loss minimization

Front 19

A firm maximizes profit or minimizes loses by doing what?

Back 19

By producing the output where marginal revenue equals marginal cost!

Front 20

If the price is below the minimum point on the AVC curve, would each unit produced cover the variable cost per unit? What would this lead to?

Back 20

Each unit produced WOULD NOT cover the variable cost per unit (AVC) and thus continuing to operate would INCREASE losses.

Front 21

If Price (MR) is below minimum average variable cost then what will happen?

Back 21

Firm will shut down

Front 22

What is a Perfectly Competitive Firm's Short-Run Supply Curve?

Back 22

The firm's marginal cost curve above the minimum point on its average variable cost curve.

Front 23

What is a Perfectly Competitive INDUSTRY's short-run supply curve?

Back 23

The supply curve derived from horizontal summation of the marginal cost curves of all firms in the industry above the minimum point of each firm's average variable cost curve.

Front 24

What is the Total Revenue-Total Cost Method?

Back 24

One way a firm determines the level of output that maximizes profit.

Front 25

Profit reaches a maximum when the vertical difference between what two things is at a maximum?

Back 25

When the vertical difference between total revenue and the total cost curves is at a maximum.

Front 26

What is the Marginal Revenue Equals Marginal Cost method?

Back 26

Second approach to finding where a firm maximizes profits.

Front 27

What does the MR=MC rule state?

Back 27

It states that the firm maximizes profit or minimizes loss by producing the output where marginal revenue equals marginal cost.

Front 28

If the price (average revenue) is below the minimum point on the average variable cost curve, does the MR=MC rule apply? What happens?

Back 28

The MR=MC rule does not apply and the firm shuts down to minimize its losses.

Front 29

The Perfectly Competitive firm's short-run supply curve shows what?

Back 29

Shows the relationship between the price of a product and the quantity supplied in the short run.

Front 30

The individual firm always produces along its what?

Back 30

Along its marginal cost curve above its intersection with the average variable cost curve.

Front 31

When does the Long-Run perfectly competitive equilibrium occur?

Back 31

Occurs when a firm earns a normal profit by producing where price equals minimum long-run average cost equals minimum short-run average total cost equals short-run marginal cost.