Microeconomics: Competitive Markets and Firm Behavior Quiz

Perfect competition assumes that all products are identical or homogeneous.

PPF illustrates the trade-offs and opportunity costs faced by an economy in allocating its resources.

The law of diminishing marginal returns posits that, as more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.

A price ceiling is a government-imposed maximum price, typically set below the market equilibrium, to protect consumers from high prices.

A perfectly elastic demand curve is vertical, indicating that consumers will only buy the good at a specific price, and any increase in price will result in zero quantity demanded.

Total revenue is the product of the price per unit and the quantity sold.

Elasticity of demand measures how much the quantity demanded changes in response to a change in price.

Utility represents the satisfaction or pleasure obtained from consuming a particular good or service.

Monopolistic competition involves a market with a few firms, each offering differentiated products.

Explicit costs are the tangible, direct expenses incurred in production, while implicit costs are the opportunity costs associated with foregone alternatives.

A monopolist seeks to maximize profit by setting output levels and prices to achieve the highest possible total revenue minus total cost.

To maximize profit, a perfectly competitive firm produces where the additional cost of producing one more unit equals the additional revenue.

In the short run, marginal cost is always greater than average variable cost.

When price elasticity of demand is negative, an increase in price leads to a decrease in total revenue, and vice versa.

Economic profit is the total revenue earned minus both explicit (direct) and implicit (opportunity) costs.

The Lorenz curve is used to visually represent income distribution and inequality within a population.

Game theory studies the strategic interactions and decision-making of rational agents in various situations.