Econ Ch14 - Firms in Competitive Markets

A perfectly competitive firm

• chooses its price to maximize profits.

• takes its price as given by market

  conditions.

• sets its price to undercut other firms selling

  similar products.

• picks the price that yields the largest

  market share.

When a perfectly competitive firm increases the

quantity it produces and sells by 10 percent, its

marginal revenue _________ and its total revenue

rises by _________.

• falls; exactly 10 percent

• falls; less than 10 percent

• stays the same; exactly 10 percent

• stays the same; less than 10 percent

A competitive firm maximizes profit by choosing the

quantity at which

• average total cost is at its minimum.

• marginal cost equals the price.

• average total cost equals the price.

• marginal cost equals average total cost.

A competitive firm’s short-run supply curve is its

_________ cost curve above its _________ cost

curve.

• average-variable-; marginal

• average-total-; marginal

• marginal-; average-variable-

• marginal-; average-total

If a profit-maximizing, competitive firm is producing

a quantity at which marginal cost is between average

variable cost and average total cost, it will

• keep producing in the short run but exit the

  market in the long run.

• shut down in the short run but return to

  production in the long run.

• shut down in the short run and exit the market in

  the long run.

• keep producing both in the short run and in the

  long run.

In the long-run equilibrium of a competitive market

with identical firms, what are the relationships among

price P, marginal cost MC, and average total cost ATC?

• P = MC and P = ATC.

• P = MC and P > ATC.

• P > MC and P = ATC.

• P > MC and P > ATC.

In the short-run equilibrium of a competitive market

with identical firms, if new firms are getting ready

to enter, what are the relationships among price P,

marginal cost MC, and average total cost ATC?

• P = MC and P = ATC.

• P = MC and P > ATC.

• P > MC and P = ATC.

• P > MC and P > ATC.

Suppose pretzel stands in New York City are a

perfectly competitive market in long-run equilibrium.

One day, the city starts imposing a $100 per month

tax on each stand. How does this policy affect the

number of pretzels consumed in the short run and

the long run?

• down in the short run, no change in the long run

• up in the short run, no change in the long run

• no change in the short run, down in the long run

• no change in the short run, up in the long run