Question

1. The perfectly competitive firm's demand curve is horizontal at the market price.

True

False

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

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

4. The theory of the perfect competitive firm provides a complete and accurate description of most real world firms existing today.

True

False

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

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

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

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

9. The monopolist is a "price maker" and must lower price to sell an additional unit of its product.

True

False

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

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

12. A monopolist is always assured of positive economic profits given its control over price.

True

False

13. For the monopolist, the marginal revenue curve lies above their demand curve in graphic illustration of their cost and revenue structure.

True

False

14. The monopolist faces a "horizontal" demand curve.

True

False

15. The monopolist can sell all it can produce at the market established price.

True

False

16. The marginal revenue curve of the monopolist lies below its demand curve.

True

False

17. The monopolist, by definition, is a "price taker."

True

False

18. In theory of monopoly, the monopoly firm is the industry.

True

False

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

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

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

there can be no variable costs

all costs are fixed costs

none of these answers are correct

all costs are variable costs

35. If the AVC (average variable cost curve) is falling,

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

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.

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

greater than the average magnitude, the average magnitude falls.

Rising, the average magnitude is necessarily above it.

Falling, the average magnitude is necessarily below it.

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

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 variable.

all inputs are fixed.

none of these answers is correct.

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

P > MC > NROI > ATC

MC = MR = P > ATC

P = MC = MR = ATC = LRATC

M = MR = AFC = ATC

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

Diseconomies of scale

Government Licenses

Scale Economies

Control over essential resources

Patents

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

P = MR

P = AVC

P = MC

P = ATC

Answer 1

1) The perfectly competitive firm's demand curve is horizontal at the market price

Solution: True

Explanation: A perfectly competitive firm faces a horizontal demand curve, which implies that the firm cannot impact price by any action it takes

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.

Solution: True

Explanation: As each firm is a price taker under perfectly competitive, thus faces a horizontal supply curve for labor at the market wage

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.

Solution: False

Explanation: If price is lower than average variable cost, a perfectly competitive firm will be unable to pay its variable factors thus will not produce in the short run

?

4) The theory of the perfect competitive firm provides a complete and accurate description of most real world firms existing today.

Solution: False

Explanation: A perfect competition is rarely (if ever) observed in the real world