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MS 2220 Exam 2

Chapters 5, 6, 8, 9 T/F

QuestionAnswer
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
Created by: savelae
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