Question

1)In the short minus??run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

True False

2) Economists have long debated whether there is a significant loss of wellminus?being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of wellminus??being?

A.Although consumers may pay a price greater than marginal cost for a? product, the product is produced at the minimum average total cost.

B. Consumers pay a price equal to the marginal cost of producing a? product, even though it is not produced at the minimum average total cost.

C. Consumers are better off choosing from a variety of differentiated? products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

D. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total? cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.

3)

The only firms that do not have market power are

A. firms in industries with low barriers to entry.

B. firms that do not advertise their products.

C. firms in perfectly competitive markets.

D. firms that sell identical products.

4) In the long run equilibrium a monopolistic ally competitive firm earning normal profit produces the allocatively efficient output level.

True False

Answer 1

Solution:

1]

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production. The statement is true.

2] D]

D. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total? Cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.

3]

The only firms that do not have market power are: Firms in perfectly competitive markets.

Their market share is very low and hence they do not have market power.

The correct answer is option C.

4] In the long run equilibrium a monopolistic ally competitive firm earning normal profit produces the allocatively efficient output level.

-True