Question

1)The general pattern of the average cost curve is to

A:fall and then rise.

B:remain constant.

C:fall.

D:rise.


2) In real life the market structure of _____ is rare because _____ and _____.

A:perfect competition; most goods are not identical; most markets have some dominant firms

B:monopoly; most goods are not identical; most markets have some dominant firms

C.monopoly; most firms advertise; most markets have many firms

D.perfect competition; most firms advertise; most markets have many firms

Answer 1

1. (Option a) fall and then rise

The general pattern of the average cost curve is typically U-shaped because of the principle of variable proportions, which explains the three phrases of curve:

(i) Increasing returns to the variable factors, which causes average costs to fall.

(ii) Constant returns

(iii) Diminishing returns, which cause average costs to rise.

2. (Option d) perfect competition; most firms advertise; most markets have many firms

In real life the market structure of perfect competition is rare because most firms advertise and most markets have many firms.