Question

Which of the following statements is true about productive and allocative efficiency?

Productive efficiency and allocative efficiency can only occur together; neither can occur without the other.

Productive efficiency can only occur if there is also allocative efficiency.

Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously.

Realizing allocative efficiency implies that productive efficiency has been realized.

Select which of the statements below aretrue.

Both pure and monopolistically competitive firms do not need to advertise their products so that they may minimize their ATC.

Natural monopolies can achieve minimum ATC.

Under regulatory marginal cost pricing, firms earn normal profits, but no more.

Economic profits are treated as a cost of production.

None of the other answers are true.

A purely competitive firm is currently producing 100 units of output and selling at $40 price. Its cost structure at the existing operation level is:

AFC = $10

AVC = $25

MC =$35

This firm

is earning an economic profit = $500.

is losing $1500.

should shut-down in the short run.

should cut back on its current level of production.

none of the other answers are correct.

The most microeconomic topic below is

French inflation rates.

aggregate unemployment in Russia.

Mexican economic growth.

the level of Volkswagan profit.

the American money supply and central bank policies.

America's national debt

Which statement is true?

A firm's explicit costs are the opportunity costs of using the resources that it already owns to make the firm's own product rather than selling those resources to outsiders for cash.

If demand is elastic, a decrease in price will increase total revenue.

Average revenue is the total amound the seller receives from the sale of a product in a praticular time period.

Marginal cost reaches its minimum point just as marginal product reaches its minimum point as well.

Diseconomies of scale explain the downward sloping part of the long-run ATC curve.

In the most competitive of industries, the surviving firms will earn huge economic profit over the longer run.

Marginal revenue

exceeds price for monopoly firms.

is perfectly inelastic for purely competitive firms.

is equivalent to average revenue for purely price discriminating firms.

is rising under conditions of oligopoly.

measures the slope of the average revenue curve.

is positive at the level of maximum total revenue.

Answer 1

Ans 1)

Productive efficiency means the level of production achieved one additional product can not be produced without sacrificing the production of other produce.

Allocative efficiency talks about the best mix of produces that maximizes the social welfare.

Both can be explained using production possibility frontier

Hence if allocative efficiency is achieved that means productive efficiency condition is met

Option D is correct.

Ans 2)

Monopolistic firms cant afford to not to use advertising as it helps them to increase the demand for their differentiated products.

Firm earns normal profit when TR=TC that is P=MC & For natural monopolies there is an advantage of scale production hence as production increases ATC decreases

Therefore Statement 2) and Statement 3) are true.

Ans 3)

Revenue for purely competitive firm =Price * output=40*100=$4000

TC=Q*(AFC +AVC )=100*35=3500

Profit=4000-3500=500

Firm in short run should continue its production as long as Price>=AVC

Therefore statement 1) is correct

ANs 4)

Other than statement 4) elaborates the problem of larger space and aggregation. Statement 3) speaks about an individual firm in the market therefore statement 4) is of Microeconomic view

Option 4) is correct

Ans 5)

If demand is elastic then demand for goods is much sensitive relative to the changes in prices therefore for elastic demand increase in price would decrease the revenue therefore prices should be decreased if revenues need to increase

Hence statement 2) is correct

Ans 6)