If a profit-maximizing, perfectly competitive firm is producing at a loss in the short run, then it implies that:
a. marginal revenue must be less than marginal cost.
b. price must be less than the average variable cost.
c. price must be less than average total cost but greater than average variable cost.
d. the average revenue curve must lie below the average variable cost curve but above the average fixed cost curve.
e. price must be less than both average variable cost and average fixed cost.
QUESTION 2A monopoly is inefficient because:
a. consumers are forced to pay higher prices for products.
b. firms are able to earn economic profits.
c. the cost of increased production is less than the value that society places on it.
d. price exceeds marginal revenue.
QUESTION 3The infant industry argument is that:
a. those industries that produce products for infants should be protected.
b. developing industries should be allowed to face foreign competition.
c. protectionism should be used to create a level playing field for the domestic firms to compete with foreign firms.
d. protectionism promotes complete specialization in the country on the basis of comparative advantage.
e. new industries should be protected from foreign competition until they have had adequate time to develop.
QUESTION 4In a perfectly competitive market, firms are not restricted from entering or leaving an industry in response to profits or losses.
Indicate whether the statement is true or false
QUESTION 5For a perfectly competitive firm, in the short run, which of the following statements is true?
a. A price above minimum average variable cost, but below average total cost will produce an economic profit.
b. A price below minimum average variable cost will cause the firm to shut down.
c. Marginal cost is parallel to the axis showing quantity of output.
d. Price is always greater than marginal revenue.
e. Every firm contributes a significant amount to the total market output.
QUESTION 6The consumer surplus lost because monopolists restrict the production of output represents a welfare loss because:
a. it is transferred to producers in the form of profit.
b. consumers pay a higher price than they would in a more competitive market.
c. society is not using its scarce resources in the best way possible.
d. of both a. and b., but not c.
QUESTION 7Developing countries often justify imposition of tariffs because:
a. it creates a burden on government budget.
b. it is easy to collect direct taxes from people in the developing countries.
c. a large number of people in the developing countries earn a taxable income.
d. developing countries find income taxes difficult to levy and collect.
e. the volume of imports of these countries is considerably low.
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