Econ Unit 3 Summary Review

Price takers are individuals in a market who:

• select a price from a wide range of alternatives.
• select the lowest price available in a competitive market.
• select the average of prices available in a competitive market.
• have no ability to affect the price of a good in a market.

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

• many buyers and sellers.
• a standardized product.
• complete information.
• ease of entry and exit.

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.
• perfectly elastic.
• downward sloping.
• relatively but not perfectly elastic.

In the short run, a perfectly competitive firm produces output and breaks even if:

• the firm produces the quantity at which MR < ATC.

• the firm produces the quantity at which MR = ATC.

• the firm produces the quantity at which MR > ATC.

• the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:

• continue to operate even though she is taking an economic loss.
• continue to operate, as she is making an economic profit.
• shut down immediately, as she is taking an economic loss.
• raise the price until she has maximized her profits.

Which of the following is true?

• If price falls below average variable cost, the firm will shut down in the short run.
• Total revenue and marginal revenue are the same in perfect competition.
• Economic profit per unit is found by subtracting MC from price.
• Economic profit is always positive in the long run.

• Shut Down
• Stay open and take a loss
• Making a normal profit
• Making a positive profit

• Shut Down
• Take loss but stay open
• Normal Profit
• Positive Economic Profit

• Shut Down
• Stay open and take a loss
• Normal Profit
• Positive Economic Profit

• Shut Down
• Stay open and take a loss
• Positive Economic Profit
• Normal Profit