Indicate if the following questions are True or False. Explain “Why” your answer is True or False.
1. Firms exist to produce and sell as much as possible. Why?
2. Employing economic cost/profit instead of accounting cost/profit when making business decisions tends to generate more efficient or superior economic results. Why?
3. For a monopoly, the marginal revenue declines as they sell more. Why?
4. Some oligopolistic firms try to collude to fix market prices. Why?
5. Market concentration measures fail to accurately assess the industry market power. Why?
The following questions are short answer questions. Clearly “explain” your ideas.
1. Explain why a firm should shut down immediately when it can no longer cover their variable.
2. Calculate the average total, fixed and marginal costs for a “competitive” firm with the following production cost schedule.
q Total Cost ATC AFC MC
0 10
10 12
20 16
30 26
40 38
50 75
60 120
What output or q is the most efficient production level?
If the market price is $1.00 then what output or q is the most profitable production level?
5. Explain why natural monopolies are regulated.
Explain why Economics is so cool. (Really)
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