True/False Indicate whether the sentence or statement is true or false. ____ 1.

ID: 1202902 • Letter: T

Question

True/False

Indicate whether the sentence or statement is true or false.

____ 1. The average fixed cost curve increases as output increases over a relevant range of production.

____ 2. Average revenue is slightly higher than price.

____ 3. Marginal cost curves and average cost curves are both purely upward sloping.

____ 4. A firm that sells at a price below average cost is not making a normal profit.

____ 5. In the short run, it is possible for a perfectly competitive firm to make economic profits or economic losses.

____ 6. If a firm sells its output at a price greater than AC, it will earn economic profit.

____ 7. Zero profit in the economic sense means that firms are earning a normal rate of return.

____ 8. In a free market (laissez-faire) system, the price mechanism dictates the production planning (how to produce) decisions.

____ 9. Free markets produce relatively high levels of efficiency but low rates of growth.

____ 10. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms.

Answer

1. The average fixed cost curve increases as output increases over a relevant range of production - FALSE

2. Average revenue is slightly higher than price - FALSE

3. Marginal cost curves and average cost curves are both purely upward sloping - FALSE.

4. A firm that sells at a price below average cost is not making a normal profit - TRUE.

5. In the short run, it is possible for a perfectly competitive firm to make economic profits or economic losses - TRUE.

6. If a firm sells its output at a price greater than AC, it will earn economic profit - TRUE.

7. Zero profit in the economic sense means that firms are earning a normal rate of return - TRUE.

8. In a free market (laissez-faire) system, the price mechanism dictates the production planning (how to produce) decisions - TRUE.

9. Free markets produce relatively high levels of efficiency but low rates of growth - TRUE.

10. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms - TRUE.

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