ECN 221 Final Exam Study Guide 2026 | Economics Review, Practice Questions &
Test Prep
The perfectly competitive model assumes: - ANS ✔✔1) a great number of buyers
2) all firms produce the same standardized product
3) easy entry into and easy exit from the market
Price-takers: - ANS ✔✔have no ability to affect the price of a good in a market (consumers are
normally price-takers, but producers often are not)
Total Revenue - ANS ✔✔total output times the price at which it sells that output
Marginal Revenue - ANS ✔✔ratio of the change in total revenue to the change in output
(increase in total revenue when it sells an additional unit of output)
Marginal Revenue = - ANS ✔✔MR = Average Revenue = Market Price = MC
profit-maximizing level of output - ANS ✔✔MR = MC above minimum AVC
produces output and earns an economic profit if: - ANS ✔✔P > ATC
produces output and earns zero economic profit if: - ANS ✔✔P = ATC
The slope of the total revenue - ANS ✔✔constant
The slope of the total cost - ANS ✔✔marginal cost
, economic profit - ANS ✔✔The difference between total revenue and total cost
The break-even price = - ANS ✔✔minimum value of average total cost
shut-down price - ANS ✔✔the minimum level of average variable cost
Short-run supply curve - ANS ✔✔marginal cost curve above its average variable cost curve, aka
the shut-down point (shows the total quantity supplied by all firms in an industry for each
possible price)
AVC < P < ATC - ANS ✔✔Produces output, Economic Loss
P < AVC - ANS ✔✔Does not produce output, shut-down
P > ATC - ANS ✔✔Produces output, Economic Gain
long-run equilibrium - ANS ✔✔all firms produce at the minimum point of their average total
cost curves
short-run market supply curve - ANS ✔✔found by summing up the short-run supply curves of
all the firms in a perfectly competitive industry
industry supply curve - ANS ✔✔shows the quantity of a good or service supplied at various
prices after all long-run adjustments to a price change have been completed
The long-run industry supply curve - ANS ✔✔relates the price of a good or service to the
quantity produced after all adjustments to a price change have been completed
Test Prep
The perfectly competitive model assumes: - ANS ✔✔1) a great number of buyers
2) all firms produce the same standardized product
3) easy entry into and easy exit from the market
Price-takers: - ANS ✔✔have no ability to affect the price of a good in a market (consumers are
normally price-takers, but producers often are not)
Total Revenue - ANS ✔✔total output times the price at which it sells that output
Marginal Revenue - ANS ✔✔ratio of the change in total revenue to the change in output
(increase in total revenue when it sells an additional unit of output)
Marginal Revenue = - ANS ✔✔MR = Average Revenue = Market Price = MC
profit-maximizing level of output - ANS ✔✔MR = MC above minimum AVC
produces output and earns an economic profit if: - ANS ✔✔P > ATC
produces output and earns zero economic profit if: - ANS ✔✔P = ATC
The slope of the total revenue - ANS ✔✔constant
The slope of the total cost - ANS ✔✔marginal cost
, economic profit - ANS ✔✔The difference between total revenue and total cost
The break-even price = - ANS ✔✔minimum value of average total cost
shut-down price - ANS ✔✔the minimum level of average variable cost
Short-run supply curve - ANS ✔✔marginal cost curve above its average variable cost curve, aka
the shut-down point (shows the total quantity supplied by all firms in an industry for each
possible price)
AVC < P < ATC - ANS ✔✔Produces output, Economic Loss
P < AVC - ANS ✔✔Does not produce output, shut-down
P > ATC - ANS ✔✔Produces output, Economic Gain
long-run equilibrium - ANS ✔✔all firms produce at the minimum point of their average total
cost curves
short-run market supply curve - ANS ✔✔found by summing up the short-run supply curves of
all the firms in a perfectly competitive industry
industry supply curve - ANS ✔✔shows the quantity of a good or service supplied at various
prices after all long-run adjustments to a price change have been completed
The long-run industry supply curve - ANS ✔✔relates the price of a good or service to the
quantity produced after all adjustments to a price change have been completed
