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Economics
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13 Dec 2019

True or False: Indicate whether each of the following statements is true or false and explain why.

1. If the government gives a subsidy of $5 for each unit of output produced to firms in a competive industry, output will increase and deadweight loss will increase.

2.Education is not an example of a public good.

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17 Dec 2019
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Related questions

Indicate whether each of the following statements is true or false and give the reason.

(a) A firm should stop expanding output after reaching diminishing returns and (See figure (7-4) on page 276)

(b) if large and small firms operate in the same industry, we must have constant returns to scale.

 

Competitions Concepts: Indicate whether each of the following statements is true or false and why.




A.


A high ratio of distribution cost to total cost tends to increase competition by widening the geographic area over which any individual producer can compete.



B.


The price elasticity of demand will tend to fall as new competitors introduce substitute products.



C.


Equilibrium in monopolistically competitive markets requires that firms be operating at the minimum point on the long-run average cost curve.



D.


An increase in product differentiation will tend to decrease the slope of firm demand curves.



E.


A perfectly functioning cartel would achieve a perfectly competitive industry price-output combination.


1. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?

a. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20.

b. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0.

c. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0.

d. P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0.

2. Describe the supply curve of a constant cost industry.

a. Upward sloping

b. Flat

c. Downward sloping, then upward sloping

d. Downward sloping

3. At the profit-maximizing output level P = MC, if P > AC then firms can earn an above-normal profit, causing entry into the industry. True or false?

4. In a competitive market, the amount of a good that is produced is such that social surplus is:

a. Minimized

b. Maximized

c. Zero

d. Hidden

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