Question

For Q. no. 47-50 please select “A” for True and select “B” for False

          

47.    In long run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

          

48.    One of the necessary conditions for a contestable market is that new firms entering the market have a cost advantage over the existing firms.

          

       

49.    The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.

          

50.    A perfectly competitive firm will always maximize short-run profits by producing the level of output where average total cost is minimized.

Answer 1

Answer:

1]

In long run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

True
The monopolistic competitive market has free entry and exit so that in the long run if there is profit new firms will enter the market up the profit is zero or vice versa.

2]

One of the necessary conditions for a contestable market is that new firms entering the market have a cost advantage over the existing firms.

False

Contestable markets have free entry to new firms, free exit to incumbents. Have access to same tech, etc, so same cost curves.

        

       

3]

The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.

True

          

4]

A perfectly competitive firm will always maximize short-run profits by producing the level of output where average total cost is minimized.

False

A Perfectly competitive firm is a firm which produces and sells homogenous product to many buyers. In this case the buyers have perfect information about the product.

In short run perfectly competitive firm maximises profit where

P=MC=MR

Here P= MR because in perfect competition marginal revenue is same because the price of each commodity remain same.

Therefore profit maximisation will be at a point where P= MC= MR in short run.

Short run profit maximisation of perfectly competitive firm will not be where average total cost is minimised.