353
Chapter Questions
mation about market conditions, and entry into and exit from the industry is very easy. Price maker A firm that faces a downward-sloping demand curve for its product. This condition implies that the firm is able to alter the market price of its product by changes its output level. Price taker A perfectly competitive firm that prices its good or service at the prevailing market price. A perfectly competitive firm is called a price taker because it is unable to influence the market price of its product by altering its level of output. This condition implies that a perfectlycompetitive firm should be able to sell as much of its good or service at the prevailing market price as any other comparable firm. Producer deadweight loss Arises when society’s resources are inefficiently employed because a monopolist does not produce at minimum per-unit cost. Producer surplus The difference between the total revenues earned from the production and sale of a given quantity of output and what the firm would have been willing to accept for the production and sale of that quantity of output. Shutdown price The price that is equal to the minimum average variable cost of producing a good or service. Below this price the firm will shut down because the firm’s loss, which will equal the firm’s total fixed cost, will be less than if the firm continues to stay in business. Total deadweight loss The loss of consumption and production efficiency arising from monopolistic market structures. Total deadweight loss is the sum of the losses of consumer and producer surpluses for which there are no offsetting gains. Total fixed cost The firm’s expenditures on fixed factors of production. Total variable cost The firm’s expenditures on variable factors of production.
CHAPTER QUESTIONS 8.1 Price competition is characteristic of firms in perfectly competitive industries. Do you agree with this statement? If not, then why not? 8.2 Firms in perfectly competitive industries may be described as price takers. What are the implications of this observation for the price and output decisions of profit-maximizing firms? 8.3 For industries characterized as perfectly competitive, equilibrium price and quantity can never be determined along the inelastic portion of the market demand curve. Do you agree? Explain. 8.4 A perfectly competitive firm earning an economic loss at the profitmaximizing level of output should shut down. Do you agree with this statement? Explain.
