# Chapter 8 Microeconomics (Exam 3)

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 Author: straightupdeme ID: 182824 Filename: Chapter 8 Microeconomics (Exam 3) Updated: 2012-11-10 20:36:36 Tags: Chapter Microeconomics Exam Folders: Description: Chapter 8 Microeconomics (Exam 3) Show Answers:

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1. The demand curve of a perfectly competitive industry is ________; the demand curve of a perfectly competitive firm is ________.
downward sloping; horizontal
2. A price taker is a firm that
faces a perfectly elastic demand curve.
3. A firm under perfect competition is a price-taker because
it cannot affect the market price.
4. Firms that seek to maximize profits will
choose the level of output where the difference between total revenue and total cost is the greatest.
5. Marginal revenue in perfect competition equals
price and the change in total revenue from producing one more unit.
6. In Exhibit 2, the profit-maximizing firm will produce how many units?
q 4
7. In Exhibit 2, if price increases, profits
increase.
8. A firm can minimize its losses by shutting down when
price is less than AVC.
9. In Exhibit 3, losses at equilibrium are equal to area
jcfp
10. In Exhibit 3, if price falls to m , the firm's losses will
equal total fixed costs.
11. Profits in the short run are
equal to the difference between price and average total cost times the number of units sold.
12. The firm should shut down in the short run if price falls below the minimum point of
average variable cost.
13. In Exhibit 4, the perfectly competitive firm's short-run supply curve is
cdef
14. If perfectly competitive firms are making economic profits, then
new firms will enter the industry.
15. Suppose a constant-cost, perfectly competitive industry is in long-run equilibrium, and then demand increases. Eventually, a new long-run equilibrium is reached. Output for a firm originally in the industry
initially increases and then returns to its original level.
16. A decrease in demand causes the long-run equilibrium price to fall. One result is
reduced prices for some resource owners.
17. In an increasing-cost, perfectly competitive industry,
• -existing firms' costs increase as output increases
• -new entrants bid up the price of resources used in the industry
• -economic profits are zero in long-run equilibrium
• -the long-run supply curve slopes upward
18. An increasing-cost, perfectly competitive industry is in long-run equilibrium. If industry demand decreases, the new long-run equilibrium will be characterized by
a lower equilibrium price.
19. Along a long-run industry supply curve in perfect competition,
economic profits are zero.
20. Productive efficiency is achieved when
firms produce at the minimum point of their long-run average cost curves
21. Allocative efficiency is achieved when
p = MC
22. Producer surplus is greater in the short run than in the long run because
the short-run supply curve is more inelastic than the long-run supply curve.
23. Producer surplus is zero
when a constant-cost industry is in long-run equilibrium.
24. The social welfare from production and consumption of a commodity is at a maximum when
price equals marginal cost.
25. To maximize economic profit
increase production as long as each additional unit adds more to total revenue than total cost
26. Golden rule
–Expand output: MR>MC

–Stop before MC>MR

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