Economics Homework Notes (Ch. 10)

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Imperfect Competition

Markets that don’t have perfect competition

Clear-cut mutual interdependence with respect to price-output policies.

Oligopoly. Must take consideration of price.

In which of the following industry structures is the entry of new firms the most difficult?

Pure Monopoly

An industry comprised of a very large number of sellers producing a standardized product is known as:

Pure Competition

A purely competitive seller is:

a "price taker."

Which of the following is characteristic of a purely competitive seller’s demand curve?

Price and marginal revenue are equal at all levels of output.

For a purely competitive seller, price equals…

Average revenue, marginal revenue, and total revenue divided by output.

The marginal revenue curve of a purely competitive firm:

Horizontal at the market price.

Average revenue curve in purely competitive firm…


Demand curve in a purely competitive industry is…


Demand curve in a single firm in that industry is…


Marginal revenue is the:

change in total revenue associated with the sale of one more unit of output.

Firms seek to maximize:

total profit.

In the short run, a purely competitive firm that seeks to maximize profit will produce:

where total revenue exceeds total cost by the maximum amount.

A firm reaches a break-even point (normal profit position) where:

Total revenue and total costs are equal and normal profits.

Marginal revenue equals marginal costs applies to…

Firms in all types of industries

MR = MC rule applies…

To firms in all types of industries.

In the short run, the individual competitive firm’s supply curve is that segment of the:

marginal cost curve lying above the average variable cost curve.

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

Economic profit of $40

A purely competitive firm’s short-run supply curve is:

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:

total variable costs.

In the short run, a purely competitive firm will always make an economic profit if:

P > ATC.

In the short run, a purely competitive seller will shut down if:

price is less than average variable cost at all outputs.

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the:

Profit-Maximizing Rule!

If price is lower than a firm’s minimum average variable cost…

The firm will not operate.

Firms demand schedule is also…

Average revenue schedule

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