Chapter 8 & 9: True/False Practice
If, at the output where marginal revenue equals marginal cost, price is below average variable cost, a firm will shut down in the short run.
T
In efficient markets, investment capital flows toward profit opportunities
T
In efficient markets, profit opportunities are quickly eliminated as they develop.
T
In perfect competition, the short run individual firm's supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry.
T
Perfectly competitive industries are characterized by a homogeneous product.
T
The horizontal sum of marginal cost curves (above AVC) of all the firms in a perfectly competitive industry is the short-run industry supply curve.
T
The increase in total cost that results from producing one more unit of output is the marginal cost.
T
The long run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms.
T
A firm in a perfectly competitive industry can raise its price above the market price to increase revenue.
F
A firm must earn an economic profit in order to receive a normal rate of return.
F
A firm suffering short-run losses will continue to operate rather than shut down when price is less than its average variable costs.
F
A firm that experiences only constant returns to scale will have a U-shaped long-run average cost curve.
F
A firm's long-run average cost curve represents the minimum cost of producing each level of output when the scale of production can be adjusted. I
T
A perfectly competitive industry's supply curve is upward sloping
T
Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st unit is $4, then average total cost of 101 units is less than $5.
T
Firms maximize their profits by producing the output level where MR = MC.
T
A firm that has increasing returns to scale in the long run does not experience diminishing marginal returns in the short run.
F
A firm that is earning a positive profit in the short run and expects to continue doing so has an incentive to expand its scale of operation in the long run.
F
Average fixed costs rise continuously as quantity of output rises.
F
Average total cost and average variable cost are minimized at the same level of output.
F
Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st unit is $6, then average total cost of 101 units is less than $5.
F
Demand for the product of an industry in perfect competition is assumed to be inelastic.
F
Economies of scale cannot be due only to the sheer size of a firm's operation.
F
If demand in a perfectly competitive market increases, then an individual firm in that industry will see its profits fall.
F
If marginal cost is increasing, then average variable cost must be increasing simultaneously.
F
Individual firms in perfectly competitive industries decide what price to charge for their output and what quantity of output to produce.
F
Information on MC of production is all that is necessary to obtain the lon rung-industry supply curv for perfect competitione, because P = MC is the profit-maximization condition for all firms
F
Input prices fall as entry occurs in an increasing-cost industry
F
Perfectly competitive firms maximize their profit by producing the output level where P = MR = AVC.
F
The marginal revenue curve for a perfectly competitive firm will be downward sloping.
F
When a firm shuts down in the short run, it breaks even.
F
When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.
F
Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve.
T
Firms in perfectly competitive industries that are earning short-run profits will likely break even in the long run.
T
For a firm in a perfectly competitive industry, price equals marginal revenue.
T
For a perfectly competitive firm, when P = MC = ATC, the most profit the firm can earn is zero.
T
If a firm earns short-run losses, it exits in the long run
T
In perfectly competitive industries, firms can easily enter and exit the industry in the long run.
T
Marginal costs reflect changes in variable costs
T
The marginal cost curve intersects the average total cost curve at ATC's minimum point.
T
The shut-down decision is a short-run decision
T
The upward-sloping portion of the perfectly competitive firm's average total cost curve is the firm's short-run supply curve.
T
When marginal cost is between average variable cost and average total cost, marginal cost is increasing.
T
When price is sufficient to cover average variable costs, firms suffering short-run losses will continue to operate rather than shut down.
T