Where marginal product is greater than average product average product is rising?

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Terms in this set (153)

Profit-maximizing firms seek to maximize output.

False

Firms seek to use factors in the most efficient way in order to maximize profits.

True

The slope of the total product curve is the average product curve.

False

Marginal product is the change is labor divided by the change in output.

False

If marginal product is less than average product, average product must be rising.

False

If marginal product is less than average product, average product must be falling.

True

If marginal product is greater than average product, then average product must be rising.

True

If marginal cost is rising, average variable cost must be rising.

False

If marginal cost is above average total cost, average total cost must be falling, whether marginal cost is rising or falling.

False

Marginal cost must cross average variable cost at its minimum.

True

Diminishing marginal returns occurs when marginal product is falling and below zero.

False

In the range of diminishing marginal returns total product is still increasing.

True

Marginal cost rises over the range of increasing marginal returns and falls over the range of diminishing marginal returns.

False

In the long run all costs are variable.

True

Firms are organizations that produce goods and services.

True

In the short run, at least one input is variable and one input is fixed.

True

The total product curve indicates the quantity of inputs needed to produce a given level of output.

True

Diminishing marginal returns are responsible for the positive slope of the marginal product curve.

False

Assume that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5 and the corresponding total outputs (in tons) are 10, 19, 26, and 31, respectively. The marginal product of the third unit of input must be 7 tons.

True

Total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost.

False

Total cost is constant because fixed cost is constant.

False

Marginal cost is the slope of the average total cost curve.

False

If the total costs per day of producing 96, 97, 98, 99, and 100 T-shirts are $200, $217, $237, $255, and $280, respectively, the marginal cost of the 100th T-shirt is $280.

False

If marginal cost is less than average total cost, then average total cost is decreasing.
Ans: True

True

A firm becomes more capital intensive if it increases the ratio of capital to labor.
Ans: True

True

The long-run average cost curve is, in principle, tangent to an infinite number of short- run average cost curves.

True

When diseconomies of scale outweigh economies of scale, the long-run average cost curve rises.

True

Perfect competition is a model of the market that assumes a large number of buyers and sellers engaged in the purchase and sale of identical goods.

True

A price taker is a market participant who is able to accept or reject the market price but cannot alter it.

True

The model of perfect competition assumes that all goods produced in an industry are physically identical, even though they are viewed by the buyers as being different.

False

A characteristic of perfect competition is that buyers know the prices that sellers are asking but sellers do not necessarily know the prices that buyers are offering.

False

If a firm in perfect competition sells 500 units of a product at $10 per unit, its marginal revenue per unit is $10.

True

At any level of output less than the most profitable one, an increase in output adds more to a firm's total cost than to its total revenue.

False

The profit-maximizing level of output for a perfectly competitive firm occurs at the quantity at which the slopes of the marginal cost and marginal revenue curves are equal.

False

A perfectly competitive firm will stay in business as long as the price per unit equals or exceeds its average total cost.

True

A perfectly competitive firm will shut down production in the short run if the price is below average total cost.

False

A perfectly competitive firm's short-run supply curve is its short-run marginal cost curve above the average total cost curve.

False

A perfectly competitive industry's market supply curve is the sum of the supply curves of all firms in the industry.

True

Accounting costs include both explicit and implicit costs.

False

Economic profits in a system of perfectly competitive markets will be positive in all industries.

False

If some firms in a perfectly competitive industry earn less than a zero economic profit, the industry's market supply curve will decrease in the long run.

True

A perfectly competitive industry characterized by increasing costs has a downward- sloping long-run industry supply curve.

False

An increase in demand in a perfectly competitive market will cause a permanent increase in economic profit.

False

The slope of the total revenue curve is marginal revenue.

True

Economic profit exists when total revenue exceeds total cost.

True

Economic profit in the long run in perfect competition is positive.

False

Economic profit cannot exist under perfect competition.

False

Total economic profit is (price minus average total cost) times quantity.

True

Profit maximization occurs when the firm produces the level of output where MR > MC.

False

If P > ATC the firm will shut down.

False

The firm will continue to produce in the short run if P <ATC and P > AVC.

True

Profit for the firm is maximized when the firm produces the level of output where MR = MC.

True

In perfect competition P > MR.

False

In perfect competition, P = MR = MC because that is where firms maximize profits.

True

MC must cross ATC and AVC at their minimums.

True

The shutdown point is P = minimum ATC.

False

The shutdown point is where MC = minimum AVC.

True

A firm's total revenue curve in perfect competition is an upward-sloping straight line.

True

The slope of the total cost curve is marginal cost.

True

The firm's supply curve in perfect competition is the MC curve.

False

The firm's supply curve in perfect competition is the AVC curve.

False

The supply curve of the firm in perfect competition is the rising portion of the MC curve above the minimum point on the AVC curve.

True

If price falls below the minimum of ATC, the firm will shut down in the short run.

False

Charges that are paid for factors of production are called implicit costs.

False

Profit computed using only explicit costs is called accounting profit.

True

Accounting profit in the long run in perfect competition will be zero.

False

Economic profit in long-run equilibrium in perfect competition is zero.

True

The primary application of the model of perfect competition is to predict how firms will respond to changes in demand and production costs.

True

In a perfectly competitive industry, a change in fixed cost will have no effect on price in the long run.

False

Provided that there are no external benefits or costs, in the long run, perfect competition will result in an efficient allocation of resources because P = MC.

True

If an industry experiences constant costs, the long-run industry supply curve will be downward sloping.

False

In a perfectly competitive industry, all firms will have equal marginal costs.

True

A monopoly is a market that usually consists of a single firm, but, in some cases, may have up to four firms and still be considered a monopoly.

False

Economies of scale, location, and ownership of a raw material are all barriers to entry that can contribute to the emergence of a monopoly.

True

A sunk cost is an expenditure that is not made because it would be unprofitable to do so.

False

Monopolists tend to be price takers because they can take whatever price the market will pay.

False

Unlike a perfectly competitive firm, a monopoly faces a perfectly elastic demand curve.

False

A monopolist may be able to maximize profit by producing in the inelastic portion of the demand curve if demand is high enough.

False

A monopoly's marginal revenue is the same as its price.

False

Unlike a perfectly competitive firm, a monopoly maximizes profits at the quantity that equates marginal revenue to marginal cost.

False

Marginal cost must be less than price at a monopolist's profit-maximizing output.

True

A monopoly produces more than would be produced if it adhered to the MC = P standard.

False

A monopoly inefficiently allocates resources by producing a smaller quantity at a higher price than if perfectly competitive firms characterized the same industry.

True

An increase in the demand facing a monopolist will decrease price and increase quantity.

False

Monopoly is not only inefficient, but it also tends to create equity problems.

True

A monopoly is likely to charge more and produce less than would be the case if perfectly competitive firms characterized the same industry.

True

A monopoly has no effective rivals.

True

Monopoly firms take the market price as given.

False

An expenditure that cannot be recovered is called a sunk cost.

True

Monopoly power means the demand curve for the monopoly is always inelastic.

False

Monopoly will produce at the output level where MR = MC.

True

Monopoly firms may have economic profits in the long run.

True

A profit-maximizing monopoly will never produce in the inelastic portion of its demand curve.

True

If demand is elastic and price falls, total revenue will increase.

True

If demand is inelastic and price increases, total revenue will fall.

False

When MR = 0, the price elasticity of demand is equal to -1.

True

Total revenue is at a maximum when MR = 0.

True

Total economic profit is the vertical distance between P and ATC.

False

If the profit-maximizing price is less than LRAC, a monopoly firm will go out of business in the long run.

True

In the case of a natural monopoly, production by a single firm results in lower costs of production.

True

Profit maximization for a monopoly firm is where P = MC.

False

The profit-maximizing level of output for any firm is where MR = MC.

True

MR > P in monopoly because demand is downward sloping.

False

Monopoly presents a problem of economic inefficiency.

True

There is no equity problem with monopoly.

False

Price and total revenue move in the opposite direction when demand is inelastic.

False

Price and total revenue move in the same direction when demand is elastic.

False

If total revenue increases when price falls, demand is inelastic.

False

Maximum total economic profits are price minus ATC times the quantity of output where MR = MC for the monopoly firm.

True

In perfect competition P = MC and in monopoly P > MC.

True

In economic theory, a perfectly competitive firm follows the marginal decision rule, but a monopoly does not.

False

Except for the number of firms in the industry, monopolistic competition and perfect competition are identical market structures.

False

Monopolistic competition is characterized by a single firm producing a product that has no close substitutes.

False

A key characteristic of monopolistic competition is product differentiation.

True

The entry of new firms into a monopolistically competitive industry is generally more difficult than is the entry of new firms into an oligopolistic industry.

False

As in all other market structures, firms in monopolistic competition maximize profit by equating marginal cost to price.

False

In the long run, a monopolistically competitive firm earns zero economic profit because its demand curve is tangent to its average fixed cost curve.

False

Monopolistic competition leads to overutilization of plants.

False

An oligopoly is an industry dominated by a few firms.

True

Firms in oligopolistic industries tend to exhibit mutual interdependence in pricing decisions.

True

Collusion occurs whenever several firms in an industry charge the same price.

False

Duopoly is a type of oligopoly consisting of three or more firms.

False

A cartel is an example of secretive, informal collusive agreements.

False

Price leadership refers to the tendency of oligopolistic firms to follow the MC = MR principle of price and output determination.

False

Game theory is an analysis that provides insight into the behavior of firms in oligopoly.

True

A dominant strategy is a special type of trigger strategy.

False

Mutually assured destruction among nuclear powers is an example of the tit-for-tat game theory strategy.

False

One benefit of advertising is that it provides information to consumers.

True

A price setter may engage in price discrimination.

True

Price discrimination is seldom done by the airlines.

False

An example of monopolistic competition is the restaurant business.

True

A restaurant is a price setter.

True

For a firm to maximize profits in monopolistic competition it should produce where P = MC.

False

In the long run, in monopolistic competition economic profits most likely will be zero.

True

In monopolistic competition, consumers would be better off if output were expanded.

True

In monopolistic competition, in the long run it is most likely that P = ATC and that there will be no excess capacity.

False

For an oligopoly to maximize profits it need not make MR = MC.

False

Firms in a duopoly industry could achieve the maximum combined profit possible if they colluded.

True

The concentration ratio in a duopoly industry is likely to be lower than industries characterized by monopolistic competition.

False

Firms in a duopoly situation may collude to choose the monopoly solution to the determination of quantity to produce and the price at which to sell their products.

True

The HHI is a measure of concentration of industry.

True

The HHI is found by squaring the percentage of each firm in the industry and then summing the squared market shares.

True

The largest HHI possible is 10.

False

The HHI for an industry with 10,000 firms where each has a 0.01 percent share of the market is 0.

False

In game theory, a strategy to respond to cheating by cheating is called a trigger strategy.

False

In game theory, a strategy to respond to cheating by cheating is called a tit-for-tat strategy.

True

In game theory, a trigger strategy is the equivalent of a dominant strategy.

False

An industry with two firms is called a duopoly.

True

Firms that openly collude are engaging in tacit collusion.

False

In the eyeglasses industry, it was found that advertising led to lower prices.

True

Advertising that provides information about prices may increase competition.

True

It is not in the interest of firms to discriminate in regard to prices.

False

If a firm wants to discriminate in regard to prices, it must be a price setter.

True

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