QUESTION 13 When a perfectly competitive firm is producing at its profit maximiz

Question

QUESTION 13

When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to price and its MC while it may or may not be making an economic profit.

True

False

2 points   

QUESTION 14

The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR while it may not be greater than its ATC.

True

False

2 points   

QUESTION 15

As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more inelastic.

True

False

2 points   

QUESTION 16

The long-run equilibrium of a monopoly is characterized by its price being equal to its MR but always greater than its ATC.

True

False

2 points   

Explanation / Answer

(13) True.

For a perfect competitor, P = MR = MC. But it will make excess profits only if its ATC lies below Price.

(14) True

A monopolist maximizes profit by equating MR with MC, and P is always above its MR. But P may not be greater than ATC always, though generally a monopolist's price lies above its ATC curve, since he is a price-setter.

(15) False

Entry of new firms increases number of substitute goods & output, so each firm's demand curve becomes more price-sensitive & elastic.

(16) False

In long run, a monopolist's price is not equal to MR (because his demand curve slopes downward unlike a perfect competitor whose demand is a horizontal straight line). Also, P may be higher than, equal to or lower than ATC.

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