PS5 - Correct Answer: False TRUE OR FALSE (You do not need...

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Correct Answer: False TRUE OR FALSE (You do not need to justify your answer but think of a justification) 1. A firm in a competitive industry takes account of the fact that the demand curve it confronts has a significant negative slope. 2. Mr. O. Carr has the cost function c ( y ) = y 2 + 100 if his output, y , is positive and c (0) = 0. If the price of output is 25, Mr. Carr’s profit-maximizing output is zero. 3. Two firms have the same technology and must pay the same wages for labor. They have identical factories, but firm 1 paid a higher price for its factory than firm 2 did. If they are both profit maximizers and have upward-sloping marginal cost curves, then we would expect firm 1 to have a higher output than firm 2. 4. Average fixed costs never increase with output. 5. It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium. 6. If some firm in an industry has the production function F ( x , y ) = x 3/4 y 3/4 , where x and y are the only two inputs in producing the good, then that industry cannot be competitive in the long run. 7. Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of output. 8. A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand and does not practice price discrimination. If the government imposes a tax of $1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than $1 per unit. 9. If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable costs will set price and output so as to maximize revenue. MULTIPLE CHOICE 1. A profit-maximizing firm continues to operate even though it is losing money. It sells its product at a price of $100. a. Average total cost is less than $100. b. Average fixed cost is less than $100. c. Marginal cost is increasing. d. Average variable cost is less than $100. e. Marginal cost is decreasing. 2. Marge Costa produces plastic dog dishes using a process that requires only labor and plastic as inputs and has constant returns to scale. With the process she is currently using, a laborer can turn out 30 dog dishes an hour. The wage rate is $9 per hour. The plastic in a dog dish costs Marge $.10. She has no other costs besides labor and plastic. Marge faces a perfectly competitive market for plastic dog dishes, and she decides that she is maximizing profits when she makes 300 dog dishes an hour. What is the market price of dog dishes? a. $.21 b. $.32 c. $.40 d. $.27 e. $.28
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3. A competitive firm uses two variable factors to produce its output, with a production function q = min{ x 1 , x 2 }. The price of factor 1 is $8 and the price of factor 2 is $5. Due to a lack of warehouse space, the company cannot use more than 10 units of x 1 . The firm must pay a fixed cost of $80 if it produces any positive amount but doesn’t have to pay this cost if it produces no output. What is the smallest
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PS5 - Correct Answer: False TRUE OR FALSE (You do not need...

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