True or False? 1. A monopolistically competitive firm maximizes profit at the po
ID: 1223079 • Letter: T
Question
True or False?
1. A monopolistically competitive firm maximizes profit at the point at which P = MC
2.If a firm triples its resource inputs and as a result output triples, then the long-run average cost curve is declining.
3.When total product is increasing at a decreasing rate, marginal product is positive, but falling.
4.The economic profits earned by monopolistically competitive firms are zero in the long run.
5.For public goods, the principle of mutual exclusivity always applies.
6.A firm's long-run supply curve is the area of ATC curve that lies above the MC curve.
7.If the firm's long-run average-total-cost curve is declining, then the firm has diseconomies of scale.
8.Education is a good example of a positive externality because the benefits of an education accrue not only to the individual but also to society as a whole.
9.When negotiation is costly, governments may be justified in passing laws to regulate the harm caused by negative externalities.
10.The only types of firms that cannot theoretically practice price discrimination are perfectly competitive firms.
Explanation / Answer
1. A monopolistically competitive firm maximizes profit at the point at which P = MC, this statement is false because monopolistically competitive firm maximizes profit at the point at which MR = MC.
2. If a firm triples its resource inputs and as a result output triples, then the long-run average cost curve is declining, this statement is false because at this point there is constant returns to scale and it LRTC is not declining.
3. .When total product is increasing at a decreasing rate, marginal product is positive, but falling, this statement is true. Marginal product is the increase in output attributable to the employment of another worker.Ifthis is positive, output (total product) must be increasing.However, since marginal product is diminishing,output is increasing at a decreasing rate.
4. The economic profits earned by monopolistically competitive firms are zero in the long run, this statement is true. This is because at long run, firms have no incentive to enter the market.
5. For public goods, the principle of mutual exclusivity always applies, this statement is false because a public good is a good whose consumption by one person does not diminish the quantity or quality available for others. Therefore, consumption by one person does not preclude consumption by others as well.
6. A firm's long-run supply curve is the area of ATC curve that lies above the MC curve is false because in the long run, the competitive firm's supply curve is the portion of the marginal-cost curve that lies above the ATC curve.
7. If the firm's long-run average-total-cost curve is declining, then the firm has diseconomies of scale, it is false, because When LRATC eventually starts to rise then the firm experiences diseconomies of scale.
8. Education is a good example of a positive externality because the benefits of an education accrue not only to the individual but also to society as a whole. This statement is true.
9. When negotiation is costly, governments may be justified in passing laws to regulate the harm caused by negative externalities. This statement is true. Because in this manner the government can eliminate the negative externality at a lower cost.
10. The only types of firms that cannot theoretically practice price discrimination are perfectly competitive firms, this statement is true because in perfect competitive market seller has no market power to influence market price and as a result price discrimination is also absent.
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