What makes the demand curve of the perfectly competitive firm uniquely different from that of firms in other kinds of market structures?
What will be an ideal response?
The perfectly competitive firm’s demand curve is horizontal, which means it can sell as much as it wants at the market price. This is possible because each firm under perfect competition is so insignificant relative to the market as a whole that it has no influence over price; it is a price taker.
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Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?
a. when the monopolist operates on the inelastic portion of the demand curve b. when the monopolist is a profit maximizer rather than a revenue maximizer c. when substantial diseconomies of scale are present d. when substantial economies of scale are present
If marginal cost is increasing, what do we know about average cost?
A. Average cost is constant and always lower than marginal cost because of the law of decreasing marginal productivity. As more items are produced, marginal costs increase (the same as productivity decreasing), but average costs remain constant because the total number of items produced is also increasing. B. If marginal cost is increasing, average costs are rising. As the cost of the next item produced rises, the average cost of all items produced must also rise. C. If marginal cost is increasing, average costs could be rising, falling, or constant. The direction of average costs depends on whether marginal cost is higher or lower than average cost. D. If marginal cost is increasing, average costs are falling. Marginal costs only increase at very high levels of production. When items are mass-produced (because of economies of scale), their average costs always fall, even when marginal costs begin to increase.
The economy moves from point A, where it produces 100 units of X and 200 units of Y, to point B, where it produces 200 units of X and 150 units of Y. It follows that
What will be an ideal response?
To avoid trade restrictions, a U.S. firm moves its final production process to Ireland and then ships the final products to Germany. This is an example of
A) trade deflection. B) trade diversion. C) protectionism. D) rules of origin.