Econ 2302 - Ex. 3

The long-run industry supply curve for a constant-cost-industry is perfectly elastic.

true.

The marginal revenue product schedule is the firm's resource demand schedule.

true.

The short-run supply curve of a perfectly competitive firm is the up-sloping portion of MC curve above AVC curve.The short-run supply curve of a perfectly competitive firm is the up-sloping portion of MC curve above AVC curve.

true.

The short-run supply curve of a perfectly competitive firm is the up-sloping portion of MC curve above the AVC curve.

true.

The term "productive efficiency" refers to fulfilling the condition, p = min ATC.

true.

When the firm produces, total profit will be maximized or total loss is minimized where marginal revenue equals marginal cost.

true.

Monopolistic competition is characterized by a few dominant firms and low entry barriers.

false, Monopolistic competition is characterized by a large number of firms and low entry barriers.

A monopoly is undesirable because compared with the ideal output and price, the monopolist's output is too large and price is too high.

false, A monopoly is undesirable because compared with the ideal output and price, the monopolist's output is too small and price is too high.

A pure monopolist will necessarily realize an economic profit when at the equilibrium output, price exceeds AVC.

false, A pure monopolist will necessarily realize an economic profit when at the equilibrium output, price exceeds ATC

A purely competitive seller meets the following conditions: (i) MR = MC at the profit maximizing output, (ii) a price taker, (iii) P > MC at the profit maximizing output, (iv) zero economic profit in the long-run.

false, A purely competitive seller meets the following conditions: (i) MR = MC at the profit maximizing output, (ii) a price taker, (iii) P = MC at the profit maximizing output, (iv) Zero economic profit in the long-run.

For a perfectly competitive firm in the long-run equilibrium, price equals average fixed cost.

false, For a perfectly competitive firm in the long-run equilibrium, P = Min ATC = MC. Note that (i) P = MR for a purely competitive firm and (ii) P= ATC means a break-even

If a monopolist were to produce in the inelastic segment of its demand curve, the firm would be maximizing profits.

false, If a monopolist were to produce in the inelastic segment of its demand curve, additional output should result in a lower TR and a higher TC, and hence necessarily incurs a lower profit or a higher loss.

If a regulatory commission seeks efficient resource (or input) allocation for the society, it will force the natural monopolist to charge a price equal to its ATC.

false, If a regulatory commission seeks efficient resource (or input) allocation for the society, it will force the natural monopolist to charge a price equal to its MC.

In the long-run, when P < ATC for all output level, a firm can minimize loss by closing-down.

false, In the long-run, a firm cannot minimize loss by closing-down because it cannot sustain continuing losses. So if P <ATC, the firm should leave the industry.

In the short-run a competitive firm which seeks to maximize profit will produce the output: at which price exceeds average total cost by the maximum amount.

false, In the short-run a competitive firm which seeks to maximize profit will produce the output where (i) total revenue exceeds total cost by maximum amount which means P(= MR) equals MC.

In the short-run, a firm should close down if total revenue is lower than total cost for all output levels.

false, In the short-run, a firm should close down if: (i) total revenue is lower than total variable cost at all output levels, (ii) price is lower than average variable cost at all output levels, or (iii) loss is greater than TFC at all output levels.

In the short-run, a firm will minimize loss by closing-down if price falls short of average total cost.

false, In the short-run, a firm will minimize loss by closing-down if price falls short of average variable total cost at all output levels, which means that TR falls short of TVC such that loss is greater than TFC at all output levels.

Nonprice competition is a characteristic of perfect competition.

false, Nonprice competition (i.e., advertising, product differentiation, product (development) is a characteristic of monopolistic perfect competition and oligopoly.

The characteristics of monopolistic competition include (i) zero long-run economic profit, (ii) a relatively large number of sellers, (iii) recognized mutual interdependence among the firms, (iv) nonprice competition

false, The characteristics of monopolistic competition does not include recognized mutual interdependence among the firms, which is a characteristic of oligopoly.

The characteristics of the long-run equilibrium for a monopolistically competitive firm include (i) Price equals minimum average total cost, (ii) Marginal revenue equals marginal cost, (iii)long-run economic profit equals zero, and (iv) excess capacity or underutilization of plant.

false, The characteristics of the long-run equilibrium for a monopolistically competitive firm does not include P = minimum ATC. At the long-run equilibrium, P > minimum ATC.

The characteristics of the long-run equilibrium for a monopolistically competitive firm include (i) price equals average total cost, (ii) Marginal revenue equals marginal cost, (iii) Long-run economic profit equals zero, (iv) Price equals marginal cost.

false, The characteristics of the long-run equilibrium for a monopolistically competitive firm does not include that price equals MC. It includes P > MC.

The demand curve to a purely competitive seller is the same as the market demand curve.

false, The demand curve to a purely competitive seller is perfectly elastic such that Demand = P = MR. The demand curve to a monopolist is the same as the market demand curve.

A precondition for the third degree price discrimination is that the commodity involved must be a durable good.

false, The preconditions for the third degree price discrimination are (i) the seller must possess some degree of monopoly power, (ii) The seller can distinguish buyers based on their elasticities of demand, and (iii) No resale takes place among buyers.

Under perfect competition, firms tend to make zero normal profit in the long-run.

false, Under perfect competition, firms tend to make just normal profit in the long-run.That is, firms tend to make zero economic profit (i.e., break-even).

. In a competitive market, only "allocative efficiency" but not "productive efficiency" occurs.

false, a competitive market, both "allocative efficiency" and "productive efficiency" occur.

In the long-run, a pure monopolist will make the normal or more than the normal profit.

true, Note: In the long-run, a pure monopolist can make (positive) economic profit because of blocked entry barrier to outsiders.

The demand curve confronting a pure monopolist is the market demand curve.

true, Note: It is down-sloping and relatively inelastic since there is no close substitute.

Demand curve facing a monopolistically competitive firm is highly elastic but down-sloping.

true, Note: It is highly elastic because of a large number of firms (=substitutes) and down-sloping because of the product differentiation.

The term "X-inefficiency" refers to that a firm fails to achieve the lowest average total cost attainable at the level of output.

true, Note: X- inefficiency is most pronounced under monopoly due to the lack of competition.

. If a regulatory commission seeks fair return to the natural monopolist, it will force the natural monopolist to charge a price equal to its ATC such that economic profit to the firm is zero.

true.

A firm will hire additional resource as long as: the MRP of the resource exceeds its MRC.

true.

A monopolistically competitive seller's demand curve tends to be more elastic, (i) the larger the number of substitutes for the seller's product and (ii) the weaker the degree of product differentiation.

true.

A monopolistically competitive seller's demand curve tends to be more elastic, the greater the number of firms and the weaker the degree of product differentiation in the market.

true.

A monopoly results in underallocation of resources because at its equilibrium output, price is greater than marginal cost.

true.

A monopoly results in underallocation of resources because at the equilibrium output, P > MC.

true.

A monopsonist pays a wage rate which is less than the MRP of labor.

true.

A perfectly discriminating monopolist will charge each buyer the maximum price the buyer would be willing and able to pay.

true.

A price-discriminating seller will charge a higher price to the consumer group with less elastic demand than to the consumer group with more elastic demand.

true.

A profit-maximizing monopolist will expand output until MR = MC.

true.

A purely competitive seller is a price taker.

true.

Allocative efficiency means that producing goods in the amount wanted by the society, and it requires that firms produce where P = MC.

true.

Assuming a perfectly competitive resource market, cost minimizing combination of resources A and B for a given output requires MPA/PA = MPB/PB.

true.

Assuming a perfectly competitive resource market, profit-maximizing combination of resources A and B requires MRPA = MRCA and MRPB = MRCB.

true.

Demand (i.e., price) and marginal revenue diverge (i. e., different) under imperfect market structures including monopoly, oligopoly, and monopolistic competition.

true.

If some firms enter a monopolistically competitive industry, the demand curves of the remaining firms will shift down (or to the left) and become more elastic.

true.

In equilibrium a monopolistically competitive firm will achieve neither productive efficiency nor allocative efficiency.

true.

In the case of monopoly regulation, output under fair-return-pricing is less than the output under socially-optimum pricing.

true.

In the long-run, a pure monopolist's economic profit can be positive.

true.

In the short-run, a competitive firm which seeks to maximize profit or minimize loss will produce where P = MC or MR = MC.

true.

In the short-run, a monopolist should close down (i) if its demand curve lies below the AVC curve at all output levels, or (ii) if its TR curve lies below the TVC curve at all output levels.

true.

In the short-run, a monopolist should close down if its demand curve lies below the AVC curve for all output levels.

true.

Industry comprised of a very large number of firms producing a standardized product is known as perfect competition.

true.

Oligopoly is more difficult to analyze than other market models because of the mutual interdependence in market shares among the firms.

true.

Other things being equal, a monopsonistic employer will hire fewer workers and pay a lower wage than will a purely competitive employer.

true.

Price exceeds marginal revenue for a monopolist because the demand curve is down-sloping.

true.

Productive efficiency means that producing goods at the minimum costs, and it requires that firms produce where P = minimum ATC.

true.

The condition for "allocative efficiency" requires that the firms should produce the output where p = MC.

true.

The demand curve confronted by a purely competitive firm is perfectly elastic.

true.

The demand for a resource depends primarily on the demand for the product it helps produce.

true.

The effect of significant economies of scale in an industry include: (i) a firm which is large can produce at a lower unit cost than can a small firm, (ii) a firm which is large can charge a lower price than can a small firm, and (iii) those cost economies can be a barrier to entry of new firms.

true.

The game theory is most applicable to the analysis of an oligopolistic market.

true.

When there are three firms in an industry with their market shares respectively 40%, 30%, and, and 30%. Then the Herfindahl index for this industry is 3400.

true.