Question

The marginal cost curve crosses the *

1 point

a. average total cost curve at the maximum of the average total cost curve.

b. average variable cost curve at the minimum of the average variable cost curve.

c. total cost curve at the minimum of the total cost curve.

d. average fixed cost curve at the minimum of the average fixed cost curve.

The average variable cost curve and average total cost curve tend to converge as output rises because *

1 point

a. the marginal cost curve intersects the average total cost curve at its minimum.

b. the average fixed costs are constant as output rises.

c. the difference between them (average fixed cost) declines.

d. output is rising more rapidly than inputs are being increased.

Monopoly and pure competition *

1 point

a. are alike in that entry is easy in both.

b. are alike in that entry is blocked in both.

c. differ in terms of the number of firms in the industry.

d. differ in that monopoly is associated with a standardized product and perfect competition associated with differentiated products.

With respect to entry and exit, monopolistic competition is *

1 point

a.characterized by free entry and blocked exit.

b. like pure competition in that entry and exit are free.

c. characterized by easy (though not free) entry and exit.

d. like pure monopoly in that entry is blocked.

An oligopoly is characterized by *

1 point

a. free entry and blocked exit.

b. few number of firms and blocked entry.

c. firms that sell homogeneous product but differentiated.

d. firms selling identical products but differentiated.

Suppose that the market for computers is dominated by a single firm, like IBM, that is able to exert influence over prices and output. This situation violates the perfect competition assumption of *

1 point

a. many buyers and sellers.

b. identical or homogeneous goods.

c. ease of entry and exit.

d. no differentiation.

Answer 1

Question 1

Option B is correct - average variable cost curve at the minimum of the average variable cost curve

Marginal cost is the additional cost incurred for producing an extra unit of output. The average variable cost is the average of the variable cost or it is the per unit variable cost. When MC is less than average variable cost, it brings down the average of the variable cost and causes the average variable cost to fall too. When MC is more than average variable cost, it increases the average of the variable cost too which further makes the average variable cost to rise. This is why MC cuts or intersects the AVC at its minimum.

Question 2

Option C is correct - the difference between them (average fixed cost) declines

We know that the total cost is the sum of fixed cost and variable cost and the average total cost is the sum of the average fixed cost and average variable cost. Fixed cost is the cost that is fixed over any level of output produced. Thus, the average fixed cost keeps falling as output increases. Since average fixed cost is the difference between the average total cost and average variable cost and it keeps falling, that's why as output increases, the difference between the average total cost and the average variable cost keeps falling and both curves tend to converge as output rises.

Question 3

Option C is correct - Differ in terms of the number of firms in the industry

A monopoly is a type of market structure where there is only a single seller of the good in the market. On the other hand, in perfect competition, there are many firms producing homogeneous goods in the same market.

Question 4

Option B is correct - like pure competition entry and exit are free

Monopolistic competition is a type of market structure where there are many firms that produce differentiated goods. These goods are not perfect substitutes for each other but are differentiated in some respect in terms of either quality, marketing strategy, etc. In this type of market structure since the firms are many just like perfect competition, there is free entry and exit of firms.