IPI102 Final exam (T or F)

Tanadon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 5 percent for both the bank loan and his personal savings. Tanadon’s implicit costs are $1,500.

• True

• False

The cost of producing an additional unit of a good is not the same as the average total cost of the good.

• True

• False

If average total cost rises when a producer either increases or decreases production from the current output level, then the firm is said to be currently operating at efficient scale.

• True

• False

If an industry exhibits economies of scale, a larger firm may be able to produce goods at a lower marginal cost than other.

• True

• False

Constant return to scale is the smallest level of output that yield the lowest long run unit cost.

• True

• False

The reason why there is no advertising by individual firms under pure competition is because firms do not make long-run profits.

• True

• False

If a firm is a price taker, then the demand curve for the firm's product is downward sloping.

• True

• False

The long run equilibrium for perfectly competitive market is when P = LRATC and P > MC.

• True

• False

Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market’s supply curve will shift to the right.

• True

• False

Perfect competition produces at allocative efficiency in the long run because price equals long run average total cost.

• True

• False