I need help with these multiple choice questions: 1. What happens when a busines
ID: 1167303 • Letter: I
Question
I need help with these multiple choice questions:
1. What happens when a business is operating a factory in the short run?
a. The business cannot alter variable costs.
b. Total cost and variable cost are usually the same.
c. Average fixed cost rises as output increases.
d. The business cannot adjust the quantity of fixed inputs.
2. When firms have an incentive to exit a competitive market, which of the following effects will their exit have?
a. It will lower market price.
b. It will necessarily raise the costs of firms that remain in the market.
c. It will raise profits for firms that remain in the market.
d. It will shift the market supply curve to the right.
3. Regardless of the cost structure of firms in a competitive market, what can we expect to happen in the long run?
a. Firms will experience rising demand for their products.
b. The marginal firm will earn zero economic profit.
c. Firms will experience a less competitive market environment.
d. Exit and entry is likely to lead to a horizontal long-run supply curve.
4. Which of the following statements best characterizes a monopoly market?
a. It generally maximizes total economic well-being.
b. It generally minimizes consumer surplus.
c. It generally fails to maximize total economic well-being.
d. It generally fails to maximize producer surplus.
5. Scenario 15-1
Consider the market for water in a small town in the Old West. Assume that the only source of water is the underground aquifer that lies directly below the town. Wells are used to supply water to the entire town.
Refer to Scenario 15-1. If dozens of residents have their own wells, which of the following statements most adequately describes the behaviour of sellers of water?
a. Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
b. Sellers will be able to charge a premium for the water.
c. The price of a litre of water will exceed its marginal cost.
d. The price of a litre of water will be driven to equal its marginal cost.
Explanation / Answer
1.In the short run,firm's incur fixed as well as variable cost.These fixed costs cannot be changes even when the output is 0.
Answer-D
2.When firm's exit a competitive industry,the supply falls because production falls.The supply curve shifts to the left increasing price.
Answer-D
3.In the long run,a perfectly competitive firm earns zero economic profit due to the condition of free entry and exit.
Answer-B
4.A monopolist's produces an efficient output and charges higher price.It does not maximize economic well being and produces dead weight loss
Answer-c