Question

Question 1 2.5 pts 1. The perfectly competitive firm's demand curve is horizontal at the market price. True False Flag this Question Question 2 2.5 pts 2. In perfect competition, the market price is established at the intersection of the market demand and market supply curves in the industry and the individual firms are "price takers" of that market price. True False Flag this Question Question 3 2.5 pts 3. The perfectly competitive firm will continue to produce in the "short-run" if the price in the market is below their average total cost but above their average variable cost. True False Flag this Question Question 4 2.5 pts 4. The theory of the perfect competitive firm provides a complete and accurate description of most real world firms existing today. True False Flag this Question Question 5 2.5 pts 5. If a firm is earning ECONOMIC PROFIT, they must be producing at an output level where the price is above their average total cost. True False Flag this Question Question 6 2.5 pts 6. We can be sure that the perfectly competitive firm, producing an output level where "price = marginal cost" is earning a normal profit, even in the short-run. True False Flag this Question Question 7 2.5 pts 7. Public franchises, patents, and copyright laws are examples of legal barriers to entry in monopoly models and are the source of monopoly power. True False Flag this Question Question 8 2.5 pts 8. In general, monopoly may exist because one firm has the exclusive ownership of a scarce resource such as bauxite, an essential element in the production of aluminum. True False Flag this Question Question 9 2.5 pts 9. The monopolist is a "price maker" and must lower price to sell an additional unit of its product. True False Flag this Question Question 10 2.5 pts 10. In monopoly theory, a price maker is a person who actively seeks out the best price for a product that he or she wisher to buy. True False Flag this Question Question 11 2.5 pts 11. As a price maker, a rational monopolist can charge whatever price it wants to charge and sell the same amount by virtue of it's monopoly power and position. True False Flag this Question Question 12 2.5 pts 12. A monopolist is always assured of positive economic profits given its control over price. True False Flag this Question Question 13 2.5 pts 13. For the monopolist, the marginal revenue curve lies above their demand curve in graphic illustration of their cost and revenue structure. True False Flag this Question Question 14 2.5 pts 14. The monopolist faces a "horizontal" demand curve. True False Flag this Question Question 15 2.5 pts 15. The monopolist can sell all it can produce at the market established price. True False Flag this Question Question 16 2.5 pts 16. The marginal revenue curve of the monopolist lies below its demand curve. True False Flag this Question Question 17 2.5 pts 17. The monopolist, by definition, is a "price taker." True False Flag this Question Question 18 2.5 pts 18. In theory of monopoly, the monopoly firm is the industry. True False Flag this Question Question 19 2.5 pts 19. To maximize profits, a single-price monopolist will produce where Marginal costs = Marginal revenue: establishing a price that is greater than their marginal cost. True False Flag this Question Question 20 2.5 pts 20. As a consequence of the perfectly competitive firm producing the quantity of output at which: price equals marginal revenue and marginal cost, it will achieve "allocative efficiency" in the deployment of societies scarce resources. True False Flag this Question Question 21 2.5 pts 21. In the "long-run," the perfect competitive achieves technical efficiency and the firm will produce at: P = ATC = LRATC, assuring the consumer that the good or service is provided at the lowest possible price--given a constant state of technology. True False Flag this Question Question 22 2.5 pts 22. Monopoly is never preferable to perfect competitive industry structures. True False Flag this Question Question 23 2.5 pts 23. A cost that is incurred when an actual monetary payment is made by the firm is an "explicit (accounting) cost"--such as the payment of an electric bill or mortgage. True False Flag this Question Question 24 2.5 pts 24. A firm is said to earn "normal profit" when it generates enough revenue to exactly cover its explicit and implicit cost(s) of production. True False Flag this Question Question 25 2.5 pts 25. The MP or MPP (marginal product or marginal physical product) curve rises as the marginal cost curve falls in the area (range) of production subject to "increasing marginal returns." True False Flag this Question Question 26 2.5 pts 26. In the short run, FC ("fixed cost") do not change as the output quantity increases. True False Flag this Question Question 27 2.5 pts 27. In the short run, AFC ("average fixed cost") do not change as the output quantity increases. True False Flag this Question Question 28 2.5 pts 28. As the output quantity continues to increase--moving to the right on the "X" (quantity of production) axis, the average variable cost curve gets closer to the average total cost curve in vertical analysis--reflecting change in the magnitude of the firm's "average fixed cost"--which necessarily, by definition, must continually decrease. True False Flag this Question Question 29 2.5 pts 29. The AVC (average variable cost) equals VC (total variable cost) divided by the level of output (quantity) or "Q." Alternately: AVC = VC / Q. True False Flag this Question Question 30 2.5 pts 30. The "onset of diminishing returns to productivity" causes the marginal product curve to peek and the marginal cost curve to bottom out. True False Flag this Question Question 31 2.5 pts 31. The marginal cost curve, the average total cost curve, and the average variable cost curve are typically "U-shaped" ultimately due to the law of diminishing returns. True False Flag this Question Question 32 2.5 pts 32. The LRATC (long run average total cost) curve is an historic envelop of the developing companies historic ATC curves--generally illustrating initial scale economies followed by constant return to scale and eventually diseconomies of scale (resulting from managerial inefficiency from BIGNESS or bureaucracy.) True False Flag this Question Question 33 2.5 pts 33. Evolving "technology" does not and cannot affect the position of the LRATC curve. True False Flag this Question Question 34 2.5 pts 34. In the long run there can be no variable costs all costs are fixed costs all costs are variable costs none of these answers are correct Flag this Question Question 35 2.5 pts 35. If the AVC (average variable cost curve) is falling, The MC curve must be below it at the level of output under consideration. The MC curve must be above it at the level of output under consideration. The MC curve is necessarily rising at the level of output under consideration The MC curve is necessarily falling at the level of output under consideration. Flag this Question Question 36 2.5 pts 36. The average-margin rule states that if the marginal magnitude (value) is less than the average magnitude (value), the average magnitude falls. Falling, the average magnitude is necessarily below it. Rising, the average magnitude is necessarily above it. greater than the average magnitude, the average magnitude falls. Flag this Question Question 37 2.5 pts 37. The law of diminishing marginal returns to productivity holds for a situation in which some inputs are variable and at least one input is fixed. all inputs are fixed. all inputs are variable. none of these answers is correct. Flag this Question Question 38 2.5 pts 38. Long run equilibrium for a perfectly competitive firm occurs when P > MC > NROI > ATC MC = MR = P > ATC M = MR = AFC = ATC P = MC = MR = ATC = LRATC Flag this Question Question 39 2.5 pts 39. Which of the following is NOT considered a barrier to entry? Government Licenses Diseconomies of scale Control over essential resources Scale Economies Patents Flag this Question Question 40 2.5 pts 40. The "regulated monopolist" (natural monopoly) will be regulated to where P = MC P = AVC P = MR P = ATC

Answer 1

1. Ans: True

2. Ans: True

Explanation for both 1 & 2:

In a perfectly competitive market, price of a good is determined by the intersection of market demand and supply curve. All the firms in a competitive market are "price takers" means they have to accept the price determined by the industry and can sell as much quantity as they want at the exising market price. Thus, each firm faces a horizontal demand curve.

3. Ans: True

Explanation:

In short run a firm can continue production even if it incurs a loss as long as price is greater than AVC. If the firm shut down, it will lose the fixed cost plus variable cost. If price falls below the AVC, it should shut-down and the loss amount will be only fixed cost.

4. Ans: False

Explanation:

In the real world, perfect competition does not exist.