Econ

7. The Long-Run Supply curve of a perfectly competitive industry cannot be downward sloping.

False, Long-Run supply curve can result in one of 3 different positions. If the industry is constant-cost, the supply curve will be horizontal. If the industry is increasing-cost it will be upward sloping. Finally, if the industry is decreasing-cost then the curve would be sloped downward.

The ATC curve intersects the MC curve at the MC's minimum

False, MC curve intersects the ATC curve at the ATC curve's minimum

5. Perfect competition guarantees technical efficiency.

False, Technical efficiency relates to how much output can be obtained from a given input. Long-run equilibrium in perfectly competitive markets meets two important conditions: allocative efficiency and productive efficiency.

2. Constant cost industry implies the existence of constant returns to scale.

False, a constant-cost industry occurs because the entry of new firms does not affect the long-run average cost curve of individual firms. The primary reason for a constant-cost industry is that an increase in demand has no impact on production cost or the long-run average cost curve. Constant returns to scale exists if a firm increases ALL resources--labor, capital, and other inputs--by 10 percent, and output also increases by 10 percent. Constant returns to scale results if long run production changes are greater than proportional changes in all inputs used by a firm.

3. If a firm is producing at the profit maximizing level of output, it must be making a profit.

False, a firm could be producing at a level that maximizes its outputs, but it could have such large expenses that it is not making a profit. Total revenue must exceed the total cost

The supply curve of the monopolist is its MC curve.

False, as a monopolist always produce where MR = MC, I.e. Monopolist always charge a price which is greater than MC, hence monopolist supply curve can never be equal to MC curve.

Dead-weight loss can never be zero.

False, in perfect competition, P = MC. Hence, dead weight loss is zero. Deadweight loss is a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable.

8. Increasing Returns to Scale means that the long-run AC is upward sloping.

False, the typical long-run average cost curve is U-shaped reflecting increasing returns to scale. Negatively sloped and decreasing returns to scale were positively sloped.

6. A profit-maximizing monopolist can never be allocatively efficient.

True, Allocative Efficiency is achieved when P=MC at Q* and P*.A monopoly is not allocatively effcient since the firm produces P>MR=MC (P>MC). A monopoly will sell a lower quantity of goods at a higher price than firms would in a purely competitive market. The monopoly will secure monopoly profits by stealing some or all of the consumer surplus. Since the loss in consumer surplus is higher than the monopolist's gain, this creates deadweight loss, which is inefficient and a form of market failure.

4. Perfect competition guarantees allocative efficiency.

True, Allocative efficiency occurs when an industry provides the greatest amount of consumer satisfaction that is possible given the available resources. Perfect competition is the only market structure in which firms produce at a price where there is no economic profit. It is not possible to make someone better off without making someone worse off. Allocative efficiency reflects the desires of society to allocate resources to where they are most suited. Allocative efficiency occurs where P = MC

Increasing returns to scale means that a larger firm is more efficient at producing any level of output than a smaller firm.

True, increasing return to scale is a situation where the firm increases the production and the average cost of producing those goods decreases. This means that a large firm having a large output will be producing the good at a lower cost as compared to a firm with a small output. This situation occurs because with increasing production the firm gets more efficient and acquire better technology and reduces the cost of production.

1. A profit-maximizing monopolist never produces in the inelastic part of a linear demand curve.

True, monopolies always operate when demand is elastic. A profit maximizing monopoly would not produce inelastic because when the demand curve is inelastic, a rise in quantity will lead to a relatively larger fall in price, and hence total revenue will actually fall.

Diminishing marginal product in a factor means that if one more of that factor is hired, output will fall.

True, output depends on factors of production like, land, labor, capital, and organization. If output falls because of increasing one unit of a factor (keeping other factors remaining the same) then this is diminishing marginal product or output.

Natural monopolies cannot be forced into marginal cost pricing.

True, since natural monopolies arise when a firm have economies of scale and when Average cost is decreasing, the marginal cost is lower than average cost and thus if pricing are done according to marginal cost pricing then price will be lower than AC because P=MC<AC. Thus firm incur a loss. Hence monopoly cannot be forced into marginal cost pricing.

The short-run supply curve of a competitive firm is its MC curve.

True, the short-run supply curve of a competitive firm is its MC curve. For a perfectly competitive firm, the rising portion of the marginal cost curve above the minimum of the Average variable cost is the short-run supply curve. The price below this point will not be a supply curve since the firm would not produce below this price. There is a one to one relationship between price quantities in case of MC for a competitive firm

Airlines practice of stand-by ticket pricing is irrational.

Uncertain, Airlines practice of stand-by ticket pricing is irrational. If the marginal benefit earned from selling the stand-by tickets is more than the marginal cost incurred for carrying additional stand-by passenger then it is rational. If the marginal benefit is less than marginal cost of carrying stand-by passenger, and still airlines are selling stand by tickets at that price then it is irrational.