"All monopolies operate with positive economic profits." Do you agree or disagree? Why?
What will be an ideal response?
Disagree. Monopolies can receive negative economic profits and can go out of business. If there is no price that lies above average total costs, the firm will receive negative economic profits. In the short run, it will continue to operate as long as price is greater than average variable cost, but it will go out of business in the long run.
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
Appendix: Incentive-compatible revelation mechanisms attempt to
a. induce an employee to reject the next best alternative employment opportunity b. elicit privately-held information c. secure enforcement primarily by third parties d. reject voluntary contracting with third parties e. impose similar risk premiums on all employees
The concavity (bowed-out shape) of the production possibilities curve is the result of: a. the law of demand
b. the law of supply. c. the law of increasing opportunity cost. d. complementarily in consumption.
When actual GDP does not rise as fast as potential GDP, the economy most likely will experience
a. inflation. b. recession. c. economic growth. d. falling unemployment.