Indicate whether each of the following statements is true or false and explain w
ID: 2506523 • Letter: I
Question
Indicate whether each of the following statements is true or false and explain why.
a. A competitive firm that is incurring a loss should immediately cease operations.
b. A pure monopoly does not have to worry about suffering losses because it has the power to set its prices at any level it desires.
c. In the long run, firms operating in perfect competition and monopolistic competition will tend to earn normal profits.
d. Assuming a linear demand curve, a firm that wants to maximize its revenue will charge a lower price than a firm that wants to maximize its profits.
e. If P>AVC, a firm
Explanation / Answer
A)No.because due to furure expected economic prospect, they have already invested a huge capital,
B) False. Pure competition exists in a market when individual firms have no
influence over price. Such firms take industry prices as a given
C) Yes.In the long run economic profit cannot be sustained due to arrival of new firm nad price competetion.
D) True. In order to maximize revenue, a firm will price its product at the
point where MR=0. By implication, this must be a lower price than the
point where MR=MC
E) True. If P>AVC but P<AC, then the company will cover some of its
fixed costs; thus, loss will be less than fixed cost (Contribution Margin is
positive)
F) False. Price will be more than MR
G) TRue. monopoly firm is a price maker, and it will pick a price that is the highest point on its demand curve