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MS 2220 Exam 2
Chapters 5, 6, 8, 9 T/F
Question | Answer |
---|---|
Price elasticity of demand is calculated as the ratio of the change in quantity demanded to the change in price | True |
The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price | True |
Perfectly Inelastic demand is represented as a vertical line | True |
Perfectly elastic demand is represented as a horizontal line | True |
When the slope of a demand curve is constant, price elasticity of demand is constant as well. | False |
A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand | False |
A demand curve with constant slope over all quantity values can have a continuously changing price elasticity of demand. | False |
A tax on a good whose demand is price elastic will be effective in discouraging consumption of that good. | True |
If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic | False |
How total revenue changes when a price changes can be predicted using price elasticity of demand. | True |
When demand is elastic, an increase in price will result in an increase in total revenue. | False |
When demand is elastic, a decrease in price will result in an increase in total revenue | True |
When demand is inelastic, an increase in price will result in an increase in total revenue. | True |
When demand is inelastic, a decrease in price will result in an increase in total revenue | False |
When demand is unit elastic, an increase in price will result in an increase in total revenue. | False |
When demand is unit elastic, a decrease in price will result in no change in total revenue. | True |
Chapter 6 | :-) |
Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market. | True |
Homogeneous products are distinguishable from each other. | False |
Price increase cause a decrease in a household's choice set | True |
Income increases cause an increase in a household's choice set | True |
The law of diminishing marginal utility implies that as a household consumes more of a product, its total utility will increase by smaller amounts, assuming marginal utility remains positive. | False |
The law of diminishing marginal utility implies that total utility never reaches a maximum | False |
When consumer maximum utility, they are equating the ratio of marginal utility to price across all goods consumed. | True |
A negative marginal utility implies negative total utility | False |
When the price of a good increase, the budget constraint does not change. | False |
When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint | False |
Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market | True |
Homogeneous products are distinguishable from each other | False |
Price increases cause a decrease in household's choice set. | True |
Income increases cause an increase in a household's choice set | True |
Chapter 8 | :-) |
Average fixed costs rise continuously as quantity of output rises | False |
The increase in total cost that results from producing one more unit of output is the marginal cost. | True |
The best combination of inputs at one level of production may not be best at other levels. | True |
If marginal cost is increasing, then average variable cost must be increasing simultaneously | False |
Average total cost and average variable cost are minimized at the same level of output. | False |
When the price of a good increases, the budget constraint does not change | False |
When the price of a good decreases, the budget constraint shifts out parallel to the original budget constraint | False |
Assuming a perfectly competitive market implies that households have perfect knowledge of qualities and prices of everything available in the market. | True |
Homogeneous products are distinguishable from each other. | False |
Price increases cause a decrease in a household's choice set | True |
Income increases cause an increase in a household's choice set | True |
Perfectly competitive industries are characterized by a homogeneous product | True |
Demand for the product of an industry in perfect competition is assumed to be inelastic | False |
The total revenue curve for a perfectly competitive firm will be a straight line with positive slope. | True |
The marginal revenue curve for a perfectly competitive firm will be downward sloping. | False |
Marginal costs reflect changes in variable costs | True |
The short-run is a period of less than one year | False |
(Ch8 Q18)The production decision is a short-run decision | **True? Maybe** |
(Ch8 Q19)If demand in a perfectly competitive market increases, then an individual firm in that industry will see its profits fall | **False? Maybe** |
(ch8 q20)For a perfectly competitive firm, when P=MC=ATC, te most profit the firm can earn is zero | False |
Firms maximize their profits by producing the output level where MR=MC | True |
Perfectly competitive firm maximize their profit by producing the output level where P = MC | True |
The upward sloping portion of the perfectly competitive firm's average total cost curve is the firm's short run supply curve. | False |
Perfectly competitive firms sell homogeneous products | True |
Perfectly competitive firms are price setters | False |
Chapter 9 | ;-) |
Input prices fall as entry occurs in an increasing-cost industry. | False |
Input prices fall as entry occurs in an decreasing-cost industry | True |
Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve. | True |
Entry of new firms in an decreasing-cost industry leads to an upward shift of the LRAC curve. | False |
Information on MC of production is all that is necessary to obtain the long run industry supply curve, because P = MC is the profit-maximization condition for all firms | False |
(Ch9 Q6) The long run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms. | True |
When price is sufficient to cover average variable costs, firms suffering short-run losses will continue to operate rather than shut down | True |
In the short run, firms suffering losses should always shut down. | False |
At all prices below the shutdown point, optimal short-run output is zero. | True |
The horizontal sum of marginal cost curves (above AVC) of all the firms in an industry is the short-run industry supply curve | True |
The marginal cost curve of a firm above AVC is also its short-run supply curve. | True |
When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale. | False |
Economies of scale cannot be due only to the sheer size of a firm's operation. | True |
Across different output levels, a firm can experience both economies and diseconomies of scale. | True |
A firm's long-run average cost curve represents the minimum cost of producing each level of output when the scale of production can be adjusted. | True |
A firm that has increasing returns to scale in the long run does not experience diminishing marginal returns in the short run. | False |