Answer the following statement true (T) or false (F)
1) In the long run, monopolistically competitive firms make normal profits because they are
forced to operate at the minimum point on their average total cost curve.
2) The monopolistically competitive seller maximizes profits by equating price and marginal cost.
3) Monopolistically competitive firms are inefficient because they produce at a point on the rising
segment of their average cost curves.
4) The demand curve of a monopolistically competitive producer is less elastic than that of a
purely competitive producer.
1) F
2) F
3) F
4) T
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In a contestable market with one firm in the market, the existing firm will
A) set its price equal to the monopoly price. B) set its price lower than the monopoly price. C) set its price higher than the monopoly price. D) have a demand curve that is horizontal at the price that will attract new firms to enter the market.
According to Gordon, a major problem with Keynes' "rigid nominal wage" theory of the business cycle is
A) a horizontal LM curve. B) it is not a market clearing theory. C) falling real wages are not countercyclical with business activity or Y. D) None of the above.
Modern economists are increasingly using microeconomic analysis in macroeconomics because
A) microeconomic theory is more scientific. B) aggregate outcomes stem from decisions made by individuals, business firms and government. C) macroeconomic subjects such as inflation affect all individuals. D) macroeconomics is older and more outdated.
When two goods are perfect substitutes, the marginal rate of substitution
a. decreases as the scarcity of one good increases. b. is constant along the indifference curve. c. changes to reflect the consumer’s changing preferences for the goods. d. increases as the scarcity of one good increases.