6. Suppose you learn that a perfectly competitive firm could receive p for an ou
ID: 1110199 • Letter: 6
Question
6. Suppose you learn that a perfectly competitive firm could receive p for an output level g and that ATC(a). Which of the following can you infer? (a) The firm is earning a profit. TI The firm is operating at a loss. (c) The firm will shut down. (d) All of the above. (e) None of the above. P1! (e economic profits in the 7. According to economic theory, perfectly competitive firs carn long-run. (a) positive (b) zero (c) negative (d) all of the above Relative to a economic profits. (a) lower (b) the same (c) higher 8. 9. A natural monopoly exists whenprovide a large cost advantage to a single large firm. (a) increasing marginal costs (b) increasing total costs (c) increasing average total costs (d) increasing returns to scale (e) decreasing returns to scale 0. Which of the following can explain why monopolies exist: (a) Control of a scarce resource or input (b) Network externality (c) Government-created barrier (d) (a) and (c) only (e) all of the aboveExplanation / Answer
Answer 6 - A perfectly competitive firm always works where p = ATC (q) in the long run when it earns normal profit. In the short run firm works where MC = MR. If market price (P) < ATC (q) then the will incur the loss in the production. Therefore we can say that the firm is operating at a loss in the market.
Option B is the correct answer.
Answer 7 - According to the economic theory, perfectly competitive firms earns zero economic profit in the long always. If these competitive firms earn positive profit, it incentivizes new firms to enter into the market. As new firm enter into the market, positive profit get distributed and again all firm earn zero economic profit.
Option B is the correct answer.
Answer 8 - Relative to the perfect competitive firm, economic theory predicts that the monopolist will earn higher economic profit in the market. In the monopoly market firm is a price setter thus it earns higher profit than perfect competitive market.
Option C is the correct answer.
Answer 9 - The natural monopoly exist when increasing returns to scale provides a large cost advantage to a single large firm.
Option D is the correct answer.
Answer 10 - Control over resources and inputs, government created-barriers , networks externality all these create monopoly in the market. All these factors contribute in creating the entry barriers to the new firms.
Option E is the correct answer.
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