I just need help in reviewing my answers...they are all true/false questions..THANKS!!!

1. A principal-agent problem occurs when managerial decisions are inconsistent with the firm’s revenue maximizing objective.
False

2. A firm making less than a normal profit would have an economic loss.
True

3. An inferior good is a good whose demand decreases as its prices decreases.
False

4. Assuming that crude oil is an input to automobile tires as well as to gasoline, an increase in the price crude oil would result in a reduction in the demand for tires while the equilibrium price of tires may increase or decrease.
True

5. Other things remaining unchanged, a reduction in income would make demand for a normal good less price elastic.
True

6. The cross price elasticity demand for a good with respect to the price of a complementary good is negative.
True

7. When the marginal product of labor is greater than its average product, the average product decreases with each additional unit of labor.
False

8. The slope of an isoquant is equal to the ratio between the price of labor and the price of capital.
False

9. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, the firm should hire more capital.
True

10. Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal revenue product.
True

11. When labor is the variable input the ratio between wage and the marginal product of labor is equal to marginal cost.
True

12. If the price falls below the average variable cost the firm shuts down in the short run.
False

13. When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to its MC but it is not necessarily equal its ATC.
False

14. The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR.
True

15. As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more elastic.
True

16. The long-run equilibrium of a monopoly is characterized by its price being greater than its MR and MC but not necessarily greater than its ATC.
False

17. A monopolistically competitive firm sets its price equal to its MR, but not equal to its MC.
False

18. We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is below its price.
True

19. In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium each firm produces exactly ½ of the market demand at a zero price.
True

20. In the kinked demand curve model it is assumed that the demand faced by an oligopoly is more elastic when it lowers the price but less elastic when it raises the price.
True

21. A distinguishing characteristic of monopolistically competitive market is product differentiation.
True

22. The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.
True

Explain Bot Explain Bot answered
8 months ago

To review your answers, let's go through each question and explanation:

1. A principal-agent problem occurs when managerial decisions are inconsistent with the firm’s revenue maximizing objective.
Answer: False
Explanation: A principal-agent problem occurs when there is a conflict of interest between the principal (e.g., firm owners) and the agent (e.g., managers). It is not necessarily related to the firm's revenue objective.

2. A firm making less than a normal profit would have an economic loss.
Answer: True
Explanation: Normal profit refers to the amount needed to cover both explicit and implicit costs. When a firm makes less than normal profit, it is not covering all costs and is experiencing an economic loss.

3. An inferior good is a good whose demand decreases as its price decreases.
Answer: False
Explanation: An inferior good is a good where demand decreases as income increases, not necessarily as the price decreases.

4. Assuming that crude oil is an input to automobile tires as well as to gasoline, an increase in the price of crude oil would result in a reduction in the demand for tires while the equilibrium price of tires may increase or decrease.
Answer: True
Explanation: An increase in the price of a key input like crude oil would lead to higher production costs for tires. This could result in a reduction in demand for tires, as consumers may be less willing to purchase them at a higher price. The equilibrium price of tires could increase or decrease depending on the combined impact of changes in demand and production costs.

5. Other things remaining unchanged, a reduction in income would make the demand for a normal good less price elastic.
Answer: True
Explanation: The price elasticity of demand measures the responsiveness of demand to changes in price. Other things remaining unchanged, a reduction in income would make individuals less sensitive to changes in price and, therefore, would make the demand for a normal good less price elastic.

6. The cross-price elasticity of demand for a good with respect to the price of a complementary good is negative.
Answer: True
Explanation: The cross-price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good. Complementary goods have a negative cross-price elasticity, as the demand for a good decreases when the price of a complementary good increases.

7. When the marginal product of labor is greater than its average product, the average product decreases with each additional unit of labor.
Answer: False
Explanation: The marginal product measures the additional output produced by adding one more unit of labor. The average product is the total output divided by the number of units of labor. If the marginal product is greater than the average product, it means that each additional unit of labor is adding more output than the average, which would increase the average product.

8. The slope of an isoquant is equal to the ratio between the price of labor and the price of capital.
Answer: False
Explanation: An isoquant represents all the combinations of inputs that can produce a certain level of output. The slope of an isoquant is determined by the relative marginal rate of technical substitution between the inputs, not by the prices of labor and capital.

9. If the ratio between the price of labor and the price of capital (w/r) is greater than the ratio between the marginal product of labor and the marginal product of capital, the firm should hire more capital.
Answer: True
Explanation: The ratio between the price of labor and the price of capital (w/r) represents the cost ratio between labor and capital. If this cost ratio is greater than the ratio between the marginal product of labor and the marginal product of capital, it means that the additional output produced by hiring one more unit of capital is relatively cheaper compared to hiring one more unit of labor. In this case, the firm should hire more capital to maximize its output.

10. Normally, the ratio between the price of a variable input and the marginal product of that input is equal to the marginal revenue product.
Answer: True
Explanation: The marginal revenue product measures the additional revenue generated by employing one more unit of a variable input. The ratio between the price of the variable input and its marginal product represents the cost of employing one more unit of that input. In a competitive market, the firm should employ additional units of a variable input as long as the marginal revenue product exceeds the cost of that input.

Continue...

🤔 🤔 Ask a New Question 🤔 🤔