Answer the following statement(s) true (T) or false (F)
1. All cost increases are passed on to a firm's customers in the form of higher prices.
2. Higher fixed costs may cause a firm to shut down its operations but will not otherwise affect its production and pricing decisions.
3. Either a rise in marginal cost or a fall in marginal revenue could cause a firm to reduce its output.
4. Higher fuel costs would cause a delivery firm to raise the price it charges.
5. Higher insurance costs would cause a delivery firm to raise the price it charges.
1. False
2. True
3. True
4. True
5. False
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Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects
A) work in the same direction to increase quantity demanded. B) work in the same direction to decrease quantity demanded. C) work in opposite directions and quantity demanded increases. D) work in opposite directions and quantity demanded decreases.
Explain the cost advantage of a firm operating at constant returns to scale
In long-run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where:
a. price equals marginal cost. b. price equals average total cost. c. price equals marginal revenue. d. marginal revenue equals average total cost.
Consider an unregulated monopoly in Figure 13.2. Suppose that a second firm enters the market. As a result, if a natural monopoly is inevitable in this market:
A. the demand curve facing each firm lies entirely above the long-run average cost curve. B. the demand curve facing each firm lies entirely below the long-run average cost curve. C. the demand curve facing each firm touches the long-run average cost curve at one point. D. None of these