If the government desires to raise a certain amount of revenue by taxing a monopoly, an ad valorem tax will A) generate the same loss of consumer surplus as a specific tax. B) generate a greater loss of consumer surplus than a specific tax. C) generate a smaller loss of consumer surplus than a specific […]
Date: September 9th, 2020
Suppose a firm has the following total cost function: TC = 100 + 4q2. What is the minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run? What will be an ideal response? ANSWER AC = 100/q + 4q. This is minimized when […]
Date: September 9th, 2020
Explain why shutting down and going out-of-business are different concepts. What will be an ideal response? ANSWER Shutting down means that the firm seizes production with the option of starting up production any time in the future. Going out-of-business is equal to exiting the industry. This involves reducing the amount of (the fixed input) […]
Date: September 9th, 2020
If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE? A) p < AVC for all levels of output. B) p < AVC only for the level of output at which p = MC. C) p < AVC only if the firm has no fixed […]
Date: September 9th, 2020
The existence of a deadweight loss associated with a monopoly can be seen because A) consumers are willing to pay more for the last unit of output than it costs to produce. B) the cost of the last unit produced is more than consumers are willing to pay for it. C) the producer surplus is […]
Date: September 9th, 2020
The loss associated with the fact that at the profit-maximizing quantity consumers value the goods more than it cost to produce them is called A) deadweight loss. B) comparative loss. C) Lerner Loss. D) Consumer Value Loss. ANSWER A
Date: September 9th, 2020
As the ratio of price to marginal cost decreases, the Lerner index A) stays the same. B) increases. C) decreases. D) can increase or decrease depending upon the shape of the demand curve. ANSWER C
Date: September 9th, 2020
If a monopoly discovers that the demand for its output has become more elastic at the original output level, then it will respond by A) producing more and setting a higher price. B) setting a lower price. C) setting a higher price. D) producing more while leaving price unchanged. ANSWER B
Date: September 9th, 2020
If a firm doesn’t make an economic profit, it will shut down. Indicate whether the statement is true or false ANSWER False. The firm compares its losses from operating with its losses when shutting down and will shut down if the latter loss is less.
Date: September 9th, 2020
Even though fixed costs do not affect the output decision, an increase in fixed costs results in a wider range of prices for which the firm operates at a loss. Indicate whether the statement is true or false ANSWER True . An increase in fixed costs will shift AC upward but leave AVC unchanged. […]
Date: September 9th, 2020
