these questions are about T or F
As long as the firm has to pay for an input, it would be wasteful not to use all input services purchased,
A profit-maximising competitive firm will never produce in region where average variable cost is declining
The reson why firms often charge a lower price at higher output levels is because they are able to spread their fixed costs over a large production run
A monoplist is best off opearing on the inelastic portion of the demand curve, where it can increase its price without losing many customers
A monoplist attempts to maximise the different between price and average cost
Take a shot. What do you think, and why.
1) As long as the firm has to pay for an input, it would be wasteful not to use all input services purchased. - False
Explanation: This statement is false because using all input services purchased may not always be efficient or productive for a firm. Sometimes, the firm may have purchased more inputs than necessary, and using them all would result in waste or inefficiency. The decision to use or not use an input service should be based on its contribution to the production process and overall costs.
2) A profit-maximizing competitive firm will never produce in a region where average variable cost is declining. - True
Explanation: This statement is true because a profit-maximizing firm will only produce in the region where marginal cost is equal to marginal revenue. When average variable cost is declining, it implies that marginal cost is less than average variable cost, which means producing more output would increase the firm's profit. Therefore, the firm should continue to produce as long as marginal cost is less than marginal revenue.
3) The reason why firms often charge a lower price at higher output levels is because they are able to spread their fixed costs over a large production run. - True
Explanation: This statement is true because fixed costs are not affected by the level of output in the short run. By spreading their fixed costs over a larger quantity of output, firms can lower their average fixed cost per unit, allowing them to charge a lower price and still cover their total costs. This price reduction can attract more customers and increase the firm's overall revenue.
4) A monopoly is best off operating on the inelastic portion of the demand curve, where it can increase its price without losing many customers. - True
Explanation: This statement is true because a monopoly has complete control over the market and faces a downward-sloping demand curve. On the inelastic portion of the demand curve, where the price elasticity of demand is less than 1, a monopoly can increase its price without losing many customers because demand is less responsive to price changes. This enables the monopoly to generate higher profits by leveraging its market power.
5) A monopoly attempts to maximize the difference between price and average cost. - False
Explanation: This statement is false because a monopoly aims to maximize its profit, not just the difference between price and average cost. Even though a monopoly can set its price above the average cost to earn positive economic profit, the objective is to maximize the overall profit, which depends on various factors such as demand elasticity, cost structure, and market conditions. Maximizing the difference between price and average cost alone may not necessarily lead to profit maximization.