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Chapter 9 or 22 Perfect Competition: Pre - Class & In -Class Activities Packet Part 2. Matching: Match the Key terms in Column "A" with the textbook definitions in Column "B" by writing the block letter of your choice under column "A" and match column "B" with the meanings in column "C" by writing the lower case letter of your choice under column "B". Column "A" Column "B" Column "C" 1. Market Structure A. An industry in which average total costs do not change as a. A market rule that states a firm must choose the level of output that lead to (industry) output increases or decreases when firms enter or exit the the highest profit. 2. Perfect Competition industry, respectively. b. An ideal model of the market based on the assumption that a large number of B. The environment of a firm, whose characteristics influence the firms produce identical goods consumed by a large number of buyers. 3. Price Taker firm's pricing and output decisions. C. A curve that shows a firm will continue to produce output as long as the price it faces is greater than the average variable cost. 4. Marginal Revenue (MR) C. An industry in which average total costs decrease as output increases and increase as output decreases when firms enter and d. A curve that shows firms' responsiveness of a market supply to a change in exit the industry, respectively. market demand in the long run. 5. Profit Maximization Rule D. The situation when firms produce the quantity of output at which e. The measure of the additional revenue that wil be generated by increasing 6. Resource Allocation price equals marginal cost: P = MC. product sales by one unit. f. A long-run situation in which both allocation and productive efficiency occur at Efficiency E. A theory of market structure based on four assumptions: (1) There the same time. It allows optimum allocation of resources and the consumers are many sellers and buyers; (2) sellers sell a homogeneous good; buy the products at the lowest possible price because the goods are produced 7. Short-Run (Firm) Supply (3) buyers and sellers have all relevant information; (4) entry into or at the minimum possible cost. exit from the market is easy. 9. It means producing without waste so that the choice is on the production Curve F. The portion of the firm's marginal cost curve that lies above the possibility frontier. In other words, goods are being produced at the lowest average variable cost curve. possible cost. 8. Short-Run Market G. Graphic representation of the quantities of output that the industry h. An increase in demand has no impact on the production cost as new firms (Industry) Supply Curve is prepared to supply at different prices after the entry and exit of entering the industry obtain resources at constant prices. For example, new firms are completed. entrants into the retail industry can employ workers at the same wage as 9. Long-Run Competitive H. An industry in which average total costs increase as output existing firms. increases and decrease as output decreases when firms enter and 1. The characteristics of the market either organizational or competitive, that Equilibrium exit the industry, respectively. describes the nature of competition & the pricing policy followed in the market. 10. Productive Efficiency 1. A seller that does not have the ability to control the price of the J. An increase in demand triggers lower production cost as new firms entering the industry force down the prices of key resources due to economies of product it sells; the seller "takes" the price determined in the market. scale, for example, the entry of new firms into the cable television industry 11. Constant-Cost J. The horizontal addition of all existing firms' short-run supply might enable lower cost of using communication satellites. Industry curves. K. A situation where resources are allocated to their best use to provide the K. The change in total revenue (TR) that results from selling one maximum satisfaction attainable by society. 12. Long-Run (Industry) additional unit of output (Q). I. An increase in demand triggers higher production cost as new firms entering L. The condition where P = MC = SRATC = LRATC. Economic profit the industry bid up the prices of key resources. For example, the entry of new Supply (LRS) Curve is zero, firms are producing the quantity of output at which price is firms into the software industry might bid up the wages paid to computer programmers. 13. Increasing-Cost equal to marginal cost, & no firm has an incentive to change its plant size. m. A production unit or a market participant that is not capable of dictating Industry M. Profit is maximized by producing the quantity of output at the price of a product that it sells because it is not big enough to influence the which MR = MC quantity supplied of the product. 14. Decreasing-Cost N. The situation when a firm produces its output at the lowest "n. The curve for the industry is derived by the horizontal summation of that part of the marginal cost curves of all the firms which lie above the minimum point Industry possible per-unit cost (lowest ATC). on the AVC curves in the short-run. 3
