Question

Appeicate an economics expert answer True/False Questions 1 through 7

Name True/False Indicate whether the statement is true or false. 1.A competitive fim's profit will be increasing as long as marginal revenue is greater than marginal cost. a True b. False 2. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. a. True b. False 3. A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue. a. True b. False 4. In a duopoly if the firms have agreed to jointly maximize profits, then each firm can increase its current individual profits by producing more. a. True b. False 5. Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement. a. Trae b. False 6. In the short nun, if the market price is below the fim's average total cost of production, the firmwill always shut down. a. True b. False 7. If we observe that when consumers' incomes rise by 10 %, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good. a. True b. False Copyright Cengage Leaning Powered by Cognero. Page

Answer 1

1. Under perfect competition, marginal revenue is the price at which the firm sells its product. Hence, if the marginal revenue exceeds the marginal cost, the firm will keep making positive profit. The statement is true.

2. Under a monopolistically competitive market, many sellers sell differentiated products. Unlike perfect competition, the products are not homogeneous. Therefore, they compete in prices and quantity. The "competition" arises due to the fact that the products are not the same. Hence, the given statement is false.

3. Under perfect competition, the average revenue is equal to the marginal revenue which is equal to the price at which the firm sells its product. Hence, the firm will decrease production if its marginal cost exceeds its marginal revenue. The given statement is true.

4. The given statement is false. Under a cartel, or a joint profit maximizing system, the firms cannot increase their individual profits by producing more.

5. This statement is true. Cartel formation avoids the chance of a price war in which all three firms are set to lose. Also, under a cartel, firms are able to charge a higher price than they could if they worked independently.

6. In the short run, the firm will shut down if its marginal revenue is less than its total cost. The given statement is true.

7. The given statement is false. An good is inferior if a rise in consumer income leads to a fall in demand for the good.