Question

1. Which of the following best defines the "production possibility frontier"?

Select one:

a. it can show all possible combinations of goods, and tell us which ones to produce

b. it cannot show all possible combinations of goods because society is typically ineficient

c. it can show all possible combinations of goods, because society is not typically inefficient

d. it can show all possible combinations of goods, but not tell us which ones the society must produce

2. If a monopolistically competitive firm is earning profits in the short run:

Select one:

a. barriers to entry will allow the firm to enjoy the profits in the long run as well.

b. it should leave the industry before it gets competed away.

c. other firms have an incentive to enter the market

d. it is acting like a perfectly competitive firm.

3. Total costs:

Select one:

a. are fixed costs plus variable costs

b. rise as out put rises

c. all of these are true

d. include explicit and implicit costs

Answer 1

Ans 1: d. it can show all possible combinations of goods, but not tell us which ones the society must produce

(It shows all the possible combination of goods and services which a society can prodcue with given resources and technology)

Ans 2: c. other firms have an incentive to enter the market (There are no barriers to entry in monopolistic market, so other firms have an incentive to enter the market)

Ans 3: (C) all the options are true

TC = TFC +TVC

As output rises, TC rises

TC also includes explicit cost and implicit cost.