A) Firms can earn positive economic profits.
B) Firms can earn negative economic profits.
C) Firms can earn zero economic profits.
D) Firms are profit maximizers, setting MR = MC if they produce a positive level of output.
E) All of the above statements are true.
G) A) and D)
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A) MR = MC ≤ P = ATC in the long run
B) ATC is minimized in the long run.
C) MC = P > ATC and a firm can earn positive economic profits in the long run.
D) MC = ATC = P in the long run equilibrium.
E) None of the above.
G) B) and D)
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A
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A) MR = MC; if a firm is making zero economic profits, it will immediately leave the industry.
B) MR = MC; if a firm is making negative economic profits it will immediately leave the industry.
C) MR = MC < P; a firm can make positive, negative or zero economic profits.
D) MR = ATC < P; a firm makes positive economic profits.
E) None of the above.
G) A) and E)
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C
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A) The product variety effect suggests that there will be too much entry in a monopolistically competitive industry.
B) The product variety effect suggests that a firm in a monopolistically competitive industry is more likely to shut down.
C) The business stealing effect suggests that there is too little entry in a monopolistically competitive industry.
D) Depending on the relative importance of the business stealing and the product variety effects, there can be too much or too little entry in a monopolistically competitive industry.
E) None of the above.
G) All of the above
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D
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A) P > MC = MR; there is a DWL.
B) P = MC; there is no DWL.
C) P must be equal to ATC, and there is a positive DWL.
D) P < AVC, there is a DWL
E) As the firm faces a perfectly elastic demand curve at the market price, MR = MC = P, and there is no DWL.
G) A) and E)
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