Question

TRUE/FALSE

1. Deadweight loss occurs when consumer surplus is reduced.

2. In a perfectly competitive market, firms sell a differentiated product.

3. The slope of the isocost line tells the firm how much capital must be reduced to keep total cost constant when hiring one more unit of labor.

Answer 1

1. False.

• Deadweight loss refers to the loss in total social surplus, it refers to the loss in the total quantity produced in an economy, it decreases the producer surplus and the consumer surplus sometimes increases.
• It occurs when the markets are producing inefficient output in the economy.

2. False.

• Perfectly competitive markets refers to the market structure in which all the firms sell identical product's and has no barriers to entry and exit.
• It is a market structure characterized by large number of buyer's and sellers engaged in the transaction.

3. True.

• An isoquant line is a line that represents the level of capital and labour that produce same level of output.
• Its slope tells the firm how much capital must be reduced to keep total cost constant when hiring one more unit of labour.