What assumptions are necessary for the perfect competition model? How realistic are they?

Why are firms operating in perfectly competitive markets considered price takers? Why do competitive firms produce at an output level at which marginal revenue equals marginal cost.

How does the competitive firm decide on the profit-maximizing level of output? Why is the average cost curve important in this model? Where do average fixed costs show up?

If a competitive firm is earning an economic loss and several other firms in its industry exit the market, then will this firm then earn a normal profit? Explain.

How are competitive firms earning a normal profit affected when costly "homeland security" regulations are imposed on them? If these firms start earning economic losses, then will they have to exit the market? Explain.

Do competitive, price taking firms have supply curves? Explain. Under what conditions do can such firms operate under a loss? What is the shutdown rule?

What happens to economic profits and economic losses in the long run? Why?

Price taking behavior occurs when
A) P = LRAVC.
B) the firm cannot sell all it wants at the market price.
C) the firm faces so much competition that it cannot control its
price.
D) both a and c
E) both b and c

If a firm is making zero economic profit,
A) it will be forced to shut down and leave the market.
B) it will also generally be making zero accounting profit.
C) it is doing as well as typical firms in other markets.
D) it will not survive in the long run.

What is the Law of Diminishing Marginal Returns?

Define: TP, AP, MP. How are these terms related graphically. When do diminishing marginal returns set in?

When costs that do not change with the level of output are
divided by the output level, you have calculated
A) total cost.
B) average total cost.
C) average fixed cost.
D) marginal cost.

Marginal cost is defined as
A) total cost divided by quantity.
B) the change in total cost resulting from the production of one
additional unit of output.
C) total variable cost divided by the number of units produced.
D) average fixed cost times the number of units produced.

Colin lives in Lineville [pronounced: LAHN-vl], Alabama, and
likes to grow zucchini. He applies fertilizer to his crop twice
during the growing season and notices that the second layer of
fertilizer increases his crop, but not as much as the first
layer. What economic concept best explains this observation?
A) the law of diminishing marginal utility
B) the law of diminishing marginal returns
C) return equalization principle
D) the principal-agent problem

In the short run, if average variable costs equal $20, average
total costs equal $70, and output equals 100, then the total
fixed cost equals
A) $50.
B) $1,000.
C) $5,000.
D) $9,000.

Define long run costs. How is any given point on a long run average cost curve related to a short run cost curve?

Students often confuse (a) diminishing returns related to variable factors of production and (b) diseconomies of scale. Explain the difference between the two, and give one example of each.

What happens to total product when marginal product is negative?

What happens to average product when marginal product is greater than average product?

At what point does marginal product start to decrease?

Define: economies and diseconomies of scale. How are they depicted on the long run average cost curve? What industries have been characterized by economies of scale over the course of your lifetimes?

What three factors cause long-run cost curves to shift?

Just how expensive is oil? Gizmodo recently provided a comparison of the price of oil relative to other popular liquids.