Question

7) T/F In a price-taker market, each firm's short run supply curve is its marginal cost curve, above its minimum average total cost.

8) T/F The limited liability of stockholders in the corporate business structure makes it harder to raise equity capital.

9) T/F In the year 2008, nearly three out of four business firms in the United States were organized as proprietorships.

10) T/F When demand is relatively price inelastic, price and total revenue will change in the same direction.

11) T/F As business firms exit a perfectly competitive market, this will typically decrease the profits of those firm who remain in the market.

Answer 1

7. FALSE: Explanation:  In price-taker market (perfect competition) short run supply curve is marginal cost curve above the shut-down point. Shhut down point is minimum point of average variable cost.

8. FALSE: The limited liability of stockholders in the corporate business structure makes it easier to raise equity capital as in such a structure personal liability of shareholders is limited to equity investment only.

9. TRUE:

10. TRUE: Explanation: When demand is price inelastic, increase in price leads to increases in revenue and vice versa. This is becuase as price increases, demand falls lower in percentage than percentage increase in price. Hence, total revenue increases.

11. FALSE: Explanation: When an individual firm exits perfect competition market, this does not make an impact on rest of the firms as individual firm makes insignificant share of total market. When more firms exit market, this leads to fall in supply. As short run supply curve shifts left, it cuts demand curve at higher price. As price increases, remaining firms make higher profits.