Answer the following statements true (T) or false (F)
1. If the price that a firm charges is higher than its average cost of production for that quantity produced, then the firm will earn profits. Conversely, if the price that a firm charges is lower than its average cost of production, the firm will suffer losses.
2. When a firm earns losses because it does not make enough revenue to offset the increased variable costs plus fixed costs, it should remain open in the short run.
3. For a constant cost industry, whenever there is an increase in market demand and price, the supply curve shifts to the right with new firms’ entry and stops at the point where the new long-run equilibrium intersects at the same market price as before.
4. The fact that perfectly competitive markets are the most usual type of market supports the statement that, in the long run, markets will feature both productive and allocative efficiency.
5. A natural monopoly occurs when a company has control of a scarce physical resource.
1. True
This statement is true. If the price that a firm charges is higher than its average cost of production for that quantity produced, then the firm will earn profits. Conversely, if the price that a firm charges is lower than its average cost of production, the firm will suffer losses.
2. False
This statement is false. When a firm earns losses because it does not make enough revenue to offset the increased variable costs plus fixed costs, it should shut down immediately. The firm should remain open in the short run only if revenue is high enough that the losses diminish when it remains open.
3. True
This statement is true. For a constant cost industry, whenever there is an increase in market demand and price, the supply curve shifts to the right with new firms’ entry and stops at the point where the new long-run equilibrium intersects at the same market price as before.
4. False
This statement is false. Perfect competition is a hypothetical benchmark. Market structures such as monopoly, monopolistic competition, and oligopoly are more frequently observed in the real world than perfect competition. These other competitive situations will not produce productive and allocative efficiency.
5. True
This statement is true. A natural monopoly occurs when a company has control of a scarce physical resource.
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The difference between a monopsonist's marginal expenditure and that of a price taker is:
A. the marginal cost of the input. B. the input expansion effect. C. the price increase effect. D. the marginal substitution effect.
The major advantage of automatic stabilizers is that they
a. guarantee the federal budget will be balanced in a relatively short amount of time. b. institute countercyclical fiscal policy without the delays associated with legislative action. c. automatically produce surpluses during recessions and deficits during expansions. d. require discretionary actions on the part of Congress before they exert an impact on output and employment.
External shocks to the stock market have little impact on stock prices since investors consider only the long run.
Answer the following statement true (T) or false (F)
Which of the following is a payroll tax?
A. The federal income tax. B. The corporate income tax. C. A sales tax. D. The Social Security tax.