Question

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

22. Monopoly is never preferable to perfect competitive industry structures.

True

False

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

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

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

26. In the short run, FC ("fixed cost") do not change as the output quantity increases.

True

False

27. In the short run, AFC ("average fixed cost") do not change as the output quantity increases.

True

False

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

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

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

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

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

33. Evolving "technology" does not and cannot affect the position of the LRATC curve.

True

False

34. In the long run

all costs are fixed costs

none of these answers are correct

all costs are variable costs

there can be no variable costs

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 is necessarily rising at the level of output under consideration

The MC curve is necessarily falling at the level of output under consideration.

The MC curve must be above it at the level of output under consideration.

36. The average-margin rule states that if the marginal magnitude (value) is

Falling, the average magnitude is necessarily below it.

greater than the average magnitude, the average magnitude falls.

less than the average magnitude (value), the average magnitude falls.

Rising, the average magnitude is necessarily above it.

37. The law of diminishing marginal returns to productivity holds for a situation in which

all inputs are fixed.

all inputs are variable.

some inputs are variable and at least one input is fixed.

none of these answers is correct.

38. Long run equilibrium for a perfectly competitive firm occurs when

P > MC > NROI > ATC

P = MC = MR = ATC = LRATC

MC = MR = P > ATC

M = MR = AFC = ATC

39. Which of the following is NOT considered a barrier to entry?

Government Licenses

Patents

Scale Economies

Diseconomies of scale

Control over essential resources

40. The "regulated monopolist" (natural monopoly) will be regulated to where

P = AVC

P = MR

P = ATC

P = MC

Answer 1

Answer 21. The stement is true. In the long run all the factors of production become variable from fixed and a lot of new firms enter the market thus the existing firma muatbproduce at such a price level to sustain themselves. Moreover if in the long fun the dirm produces higher or lower than the point where ATC = PRICE then there may be a chance of a lot of entry and exit of firms.

Answer 22. The statement is true as in perfect competition the buyers are well informed about the goods and services offered and thus they don’t have any control on the price and neither the sellers. But in case of monopoly the sellers have full control on the price.

Answer 23. This statememt is True. Explicit cost are also refered to as out of pocket cost and also refered to as direct cost. While implicit costs are cost like capital invested in business which can be invested elsewhere. It is also called opportunity cost.

Answer 24. This statement is true. As economic profits is equal to total revenue minus explicit and implicit costs. This is the break even level and here total revenue and costs are zero.