Econ #3
Marginal cost is the slope of the average total cost curve.
False
Marginal cost rises over the range of increasing marginal returns and falls over the range of diminishing marginal returns.
False
Marginal product is the change is labor divided by the change in output.
False
Monopolistic competition is characterized by a single firm producing a product that has no close substitutes.
False
Monopolistic competition leads to overutilization of plants.
False
Monopolists tend to be price takers because they can take whatever price the market will pay.
False
Monopoly firms take the market price as given.
False
Total economic profit is the vertical distance between P and ATC.
False
Unlike a perfectly competitive firm, a monopoly faces a perfectly elastic demand curve.
False
Unlike a perfectly competitive firm, a monopoly maximizes profits at the quantity that equates marginal revenue to marginal cost.
False
Perfect competition is a model of the market that assumes a large number of buyers and sellers engaged in the purchase and sale of identical goods.
True
Profit computed using only explicit costs is called accounting profit.
True
Profit for the firm is maximized when the firm produces the level of output where MR = MC.
True
Provided that there are no external benefits or costs, in the long run, perfect competition will result in an efficient allocation of resources because P = MC.
True
The HHI is a measure of concentration of industry.
True
The HHI is found by squaring the percentage of each firm in the industry and then summing the squared market shares.
True
The firm will continue to produce in the short run if P <ATC and P > AVC.
True
The long-run average cost curve is, in principle, tangent to an infinite number of short- run average cost curves.
True
The primary application of the model of perfect competition is to predict how firms will respond to changes in demand and production costs.
True
The profit-maximizing level of output for any firm is where MR = MC.
True
The shutdown point is where MC = minimum AVC.
True
The slope of the total cost curve is marginal cost.
True
The slope of the total revenue curve is marginal revenue.
True
The supply curve of the firm in perfect competition is the rising portion of the MC curve above the minimum point on the AVC curve.
True
The total product curve indicates the quantity of inputs needed to produce a given level of output.
True
Total economic profit is (price minus average total cost) times quantity.
True
Total revenue is at a maximum when MR = 0.
True
When MR = 0, the price elasticity of demand is equal to -1.
True
When diseconomies of scale outweigh economies of scale, the long-run average cost curve rises.
True
Economic profit cannot exist under perfect competition.
False
Economic profit in the long run in perfect competition is positive.
False
Economic profits in a system of perfectly competitive markets will be positive in all industries.
False
Except for the number of firms in the industry, monopolistic competition and perfect competition are identical market structures.
False
Firms that openly collude are engaging in tacit collusion.
False
For a firm to maximize profits in monopolistic competition it should produce where P = MC.
False
For an oligopoly to maximize profits it need not make MR = MC.
False
If P > ATC the firm will shut down.
False
If an industry experiences constant costs, the long-run industry supply curve will be downward sloping.
False
If demand is inelastic and price increases, total revenue will fall.
False
If marginal cost is above average total cost, average total cost must be falling, whether marginal cost is rising or falling.
False
If marginal cost is rising, average variable cost must be rising.
False
If marginal product is less than average product, average product must be rising.
False
If price falls below the minimum of ATC, the firm will shut down in the short run.
False
If the total costs per day of producing 96, 97, 98, 99, and 100 T-shirts are $200, $217, $237, $255, and $280, respectively, the marginal cost of the 100th T-shirt is $280.
False
If total revenue increases when price falls, demand is inelastic.
False
In a perfectly competitive industry, a change in fixed cost will have no effect on price in the long run.
False
In economic theory, a perfectly competitive firm follows the marginal decision rule, but a monopoly does not.
False
In game theory, a strategy to respond to cheating by cheating is called a trigger strategy.
False
In game theory, a trigger strategy is the equivalent of a dominant strategy.
False
In monopolistic competition, in the long run it is most likely that P = ATC and that there will be no excess capacity.
False
In perfect competition P > MR.
False
In the long run, a monopolistically competitive firm earns zero economic profit because its demand curve is tangent to its average fixed cost curve.
False
It is not in the interest of firms to discriminate in regard to prices.
False
MR > P in monopoly because demand is downward sloping.
False
Monopoly power means the demand curve for the monopoly is always inelastic.
False
Mutually assured destruction among nuclear powers is an example of the tit-for-tat game theory strategy.
False
Price and total revenue move in the opposite direction when demand is inelastic.
False
Price and total revenue move in the same direction when demand is elastic.
False
Price discrimination is seldom done by the airlines.
False
Price leadership refers to the tendency of oligopolistic firms to follow the MC = MR principle of price and output determination.
False
Profit maximization for a monopoly firm is where P = MC.
False
Profit maximization occurs when the firm produces the level of output where MR > MC.
False
Profit-maximizing firms seek to maximize output.
False
The HHI for an industry with 10,000 firms where each has a 0.01 percent share of the market is 0.
False
The concentration ratio in a duopoly industry is likely to be lower than industries characterized by monopolistic competition.
False
The entry of new firms into a monopolistically competitive industry is generally more difficult than is the entry of new firms into an oligopolistic industry.
False
The firm's supply curve in perfect competition is the AVC curve.
False
The firm's supply curve in perfect competition is the MC curve.
False
The largest HHI possible is 10.
False
The model of perfect competition assumes that all goods produced in an industry are physically identical, even though they are viewed by the buyers as being different.
False
The profit-maximizing level of output for a perfectly competitive firm occurs at the quantity at which the slopes of the marginal cost and marginal revenue curves are equal.
False
The shutdown point is P = minimum ATC.
False
The slope of the total product curve is the average product curve.
False
There is no equity problem with monopoly.
False
Total cost is constant because fixed cost is constant.
False
Total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost.
False
In the long run all costs are variable.
True
In the range of diminishing marginal returns total product is still increasing.
True
In the short run, at least one input is variable and one input is fixed.
True
MC must cross ATC and AVC at their minimums.
True
Marginal cost must be less than price at a monopolist's profit-maximizing output.
True
Marginal cost must cross average variable cost at its minimum.
True
Maximum total economic profits are price minus ATC times the quantity of output where MR = MC for the monopoly firm.
True
Monopoly firms may have economic profits in the long run.
True
Monopoly is not only inefficient, but it also tends to create equity problems.
True
Monopoly presents a problem of economic inefficiency.
True
Monopoly will produce at the output level where MR = MC.
True
One benefit of advertising is that it provides information to consumers.
True
An increase in the demand facing a monopolist will decrease price and increase quantity.
False
As in all other market structures, firms in monopolistic competition maximize profit by equating marginal cost to price.
False
At any level of output less than the most profitable one, an increase in output adds more to a firm's total cost than to its total revenue.
False
Charges that are paid for factors of production are called implicit costs.
False
Collusion occurs whenever several firms in an industry charge the same price.
False
Diminishing marginal returns are responsible for the positive slope of the marginal product curve.
False
Diminishing marginal returns occurs when marginal product is falling and below zero.
False
Duopoly is a type of oligopoly consisting of three or more firms.
False
A cartel is an example of secretive, informal collusive agreements.
False
A characteristic of perfect competition is that buyers know the prices that sellers are asking but sellers do not necessarily know the prices that buyers are offering.
False
A dominant strategy is a special type of trigger strategy.
False
A monopolist may be able to maximize profit by producing in the inelastic portion of the demand curve if demand is high enough.
False
A monopoly is a market that usually consists of a single firm, but, in some cases, may have up to four firms and still be considered a monopoly.
False
A monopoly produces more than would be produced if it adhered to the MC = P standard.
False
A monopoly's marginal revenue is the same as its price.
False
A perfectly competitive firm will shut down production in the short run if the price is below average total cost.
False
A perfectly competitive firm's short-run supply curve is its short-run marginal cost curve above the average total cost curve.
False
A perfectly competitive industry characterized by increasing costs has a downward- sloping long-run industry supply curve.
False
A sunk cost is an expenditure that is not made because it would be unprofitable to do so.
False
Accounting costs include both explicit and implicit costs.
False
Accounting profit in the long run in perfect competition will be zero.
False
An increase in demand in a perfectly competitive market will cause a permanent increase in economic profit.
False
In the long run, in monopolistic competition economic profits most likely will be zero.
True
A firm becomes more capital intensive if it increases the ratio of capital to labor. Ans: True
True
A firm's total revenue curve in perfect competition is an upward-sloping straight line.
True
A key characteristic of monopolistic competition is product differentiation.
True
A monopoly has no effective rivals.
True
A monopoly inefficiently allocates resources by producing a smaller quantity at a higher price than if perfectly competitive firms characterized the same industry.
True
A monopoly is likely to charge more and produce less than would be the case if perfectly competitive firms characterized the same industry.
True
A perfectly competitive firm will stay in business as long as the price per unit equals or exceeds its average total cost.
True
A perfectly competitive industry's market supply curve is the sum of the supply curves of all firms in the industry.
True
A price setter may engage in price discrimination.
True
A price taker is a market participant who is able to accept or reject the market price but cannot alter it.
True
A profit-maximizing monopoly will never produce in the inelastic portion of its demand curve.
True
A restaurant is a price setter.
True
Advertising that provides information about prices may increase competition.
True
An example of monopolistic competition is the restaurant business.
True
An expenditure that cannot be recovered is called a sunk cost.
True
An industry with two firms is called a duopoly.
True
An oligopoly is an industry dominated by a few firms.
True
Assume that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5 and the corresponding total outputs (in tons) are 10, 19, 26, and 31, respectively. The marginal product of the third unit of input must be 7 tons.
True
Economic profit exists when total revenue exceeds total cost.
True
Economic profit in long-run equilibrium in perfect competition is zero.
True
Economies of scale, location, and ownership of a raw material are all barriers to entry that can contribute to the emergence of a monopoly.
True
Firms are organizations that produce goods and services.
True
Firms in a duopoly industry could achieve the maximum combined profit possible if they colluded.
True
Firms in a duopoly situation may collude to choose the monopoly solution to the determination of quantity to produce and the price at which to sell their products.
True
Firms in oligopolistic industries tend to exhibit mutual interdependence in pricing decisions.
True
Firms seek to use factors in the most efficient way in order to maximize profits.
True
Game theory is an analysis that provides insight into the behavior of firms in oligopoly.
True
If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.
True
If a firm wants to discriminate in regard to prices, it must be a price setter.
True
If demand is elastic and price falls, total revenue will increase.
True
If marginal cost is less than average total cost, then average total cost is decreasing. Ans: True
True
If marginal product is greater than average product, then average product must be rising.
True
If marginal product is less than average product, average product must be falling.
True
If some firms in a perfectly competitive industry earn less than a zero economic profit, the industry's market supply curve will decrease in the long run.
True
If the profit-maximizing price is less than LRAC, a monopoly firm will go out of business in the long run.
True
In a perfectly competitive industry, all firms will have equal marginal costs.
True
In game theory, a strategy to respond to cheating by cheating is called a tit-for-tat strategy.
True
In monopolistic competition, consumers would be better off if output were expanded.
True
In perfect competition P = MC and in monopoly P > MC.
True
In perfect competition, P = MR = MC because that is where firms maximize profits.
True
In the case of a natural monopoly, production by a single firm results in lower costs of production.
True
In the eyeglasses industry, it was found that advertising led to lower prices.
True
