I just need help reviewing my HW answers...they are all true/false questions..THANKS!!!
1. A principal-agent problem occurs when managerial decisions are inconsistent with the firm’s revenue maximizing objective.
False
2. A firm making less than a normal profit would have an economic loss.
True
3. An inferior good is a good whose demand decreases as its prices decreases.
False
4. Assuming that crude oil is an input to automobile tires as well as to gasoline, an increase in the price crude oil would result in a reduction in the demand for tires while the equilibrium price of tires may increase or decrease.
True
5. Other things remaining unchanged, a reduction in income would make demand for a normal good less price elastic.
True
6. The cross price elasticity demand for a good with respect to the price of a complementary good is negative.
True
7. When the marginal product of labor is greater than its average product, the average product decreases with each additional unit of labor.
False
8. The slope of an isoquant is equal to the ratio between the price of labor and the price of capital.
False
9. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, the firm should hire more capital.
True
10. Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal revenue product.
True
11. When labor is the variable input the ratio between wage and the marginal product of labor is equal to marginal cost.
True
12. If the price falls below the average variable cost the firm shuts down in the short run.
False
13. When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to its MC but it is not necessarily equal its ATC.
False
14. The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR.
True
15. As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more elastic.
True
16. The long-run equilibrium of a monopoly is characterized by its price being greater than its MR and MC but not necessarily greater than its ATC.
False
17. A monopolistically competitive firm sets its price equal to its MR, but not equal to its MC.
False
18. We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is below its price.
True
19. In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium each firm produces exactly ½ of the market demand at a zero price.
True
20. In the kinked demand curve model it is assumed that the demand faced by an oligopoly is more elastic when it lowers the price but less elastic when it raises the price.
True
21. A distinguishing characteristic of monopolistically competitive market is product differentiation.
True
22. The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.
True
My apologies for not answering your earlier post.
I am always nervous about T/F questions as I tend to over-analyze. Plus, some of your questions involve things I have long forgotton. Plus, I don't want to research every question.
So, here goes :
1) I don't remember the characteristics of a principal/agent problems.
2) My knee-jerk answer was also True. However, could "less than normal profits" still be greater zero economic profits? hmmm
3) I agree, False
4) I agree, True
5) My knee jerk answer is False, I not sure you can make definitive statements about the change in price elasticities caused by a change in income.
6) I agree True
7) I agree False
8) I agree False
9) I agree True
10) hmmm, I think False, isnt marginal revenue product equal to marginal product of input times the price of output?
11) hmmm, perhaps symantics, but isnt marginal cost equal to the ratio of the marginal product of labor and the wage rate -- not the other way around?
12) I agree false
13) I agree, false
14) I agree, true
15) I agree, true
16) Hmm, I think True.
17) I agree, false
18) I don't know, I'm not sure what is meant by excess capacity. (But I would guess true)
19) I don't know, I have long since forgotton what the Cournot model is. (But I would guess true)
20) hmmm isnt it the other way around. Check my thinking.
21) I agree true
22) I don't know.
1. A principal-agent problem occurs when managerial decisions are inconsistent with the firm’s revenue maximizing objective.
False
2. A firm making less than a normal profit would have an economic loss.
True
3. An inferior good is a good whose demand decreases as its prices decreases.
False
4. Assuming that crude oil is an input to automobile tires as well as to gasoline, an increase in the price crude oil would result in a reduction in the demand for tires while the equilibrium price of tires may increase or decrease.
True
5. Other things remaining unchanged, a reduction in income would make demand for a normal good less price elastic.
True
6. The cross price elasticity demand for a good with respect to the price of a complementary good is negative.
True
7. When the marginal product of labor is greater than its average product, the average product decreases with each additional unit of labor.
False
8. The slope of an isoquant is equal to the ratio between the price of labor and the price of capital.
False
9. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, the firm should hire more capital.
True
10. Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal revenue product.
True
11. When labor is the variable input the ratio between wage and the marginal product of labor is equal to marginal cost.
True
12. If the price falls below the average variable cost the firm shuts down in the short run.
False
13. When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to its MC but it is not necessarily equal its ATC.
False
14. The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR.
True
15. As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more elastic.
True
16. The long-run equilibrium of a monopoly is characterized by its price being greater than its MR and MC but not necessarily greater than its ATC.
False
17. A monopolistically competitive firm sets its price equal to its MR, but not equal to its MC.
False
18. We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is below its price.
True
19. In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium each firm produces exactly ½ of the market demand at a zero price.
True
20. In the kinked demand curve model it is assumed that the demand faced by an oligopoly is more elastic when it lowers the price but less elastic when it raises the price.
True
21. A distinguishing characteristic of monopolistically competitive market is product differentiation.
True
22. The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.
True
Here are the correct answers for the true/false questions:
1. False. A principal-agent problem occurs when the interests of the principal (e.g., shareholders) and the agent (e.g., managers) are not aligned, resulting in conflicts and potential goals inconsistency.
2. True. If a firm is making less than a normal profit, it means its revenues are not sufficient to cover all costs, resulting in an economic loss.
3. False. An inferior good is a good whose demand increases as its price decreases.
4. True. An increase in the price of crude oil, which is an input for automobile tires, would result in a reduction in the demand for tires. The equilibrium price of tires may increase or decrease depending on the relative changes in supply and demand.
5. True. When income decreases, the demand for a normal good tends to decrease, and the price elasticity of demand becomes less elastic.
6. True. The cross-price elasticity of demand for a good with respect to the price of a complementary good is negative because they are consumed together.
7. False. When the marginal product of labor is greater than its average product, the average product increases with each additional unit of labor.
8. False. The slope of an isoquant is equal to the ratio between the marginal rate of technical substitution, not the price of labor and the price of capital.
9. True. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, it is beneficial for the firm to hire more capital.
10. True. In a competitive market, the ratio between the price of a variable input and the marginal product of that input is equal to the marginal revenue product.
11. True. The wage rate divided by the marginal product of labor is equal to the marginal cost of labor.
12. False. If the price falls below the average variable cost, the firm may shut down in the short run.
13. False. In a perfectly competitive firm, when producing at the profit-maximizing level of output, marginal revenue (MR) is equal to marginal cost (MC) and average total cost (ATC).
14. True. A profit-maximizing monopoly charges a price higher than both its marginal cost (MC) and its marginal revenue (MR).
15. True. As new firms enter a monopolistically competitive market, the demand faced by each firm becomes more elastic due to increased competition.
16. False. The long-run equilibrium of a monopoly is characterized by price being equal to both marginal cost (MC) and average total cost (ATC).
17. False. A monopolistically competitive firm sets its price above both marginal revenue (MR) and marginal cost (MC).
18. True. In a monopolistically competitive market, firms have excess capacity because their marginal cost (MC) is below their price.
19. True. In a duopoly using the Cournot model, at equilibrium, each firm produces a quantity equal to half of the market demand, but the price is not necessarily zero.
20. True. In the kinked demand curve model, the demand faced by an oligopoly is more elastic when the price is lowered and less elastic when the price is raised.
21. True. Product differentiation is a distinguishing characteristic of a monopolistically competitive market.
22. True. The existence of some degree of decision interdependency among firms in an oligopolistic market explains the relative price stability.