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Homework answers / question archive / True or False, If False, provide a counterexample
True or False, If False, provide a counterexample.
1. Short run economic costs must be lower than long run economic costs because long run economic costs include the cost of inputs that are fixed in the short run (and thus are not part of short run cost).
2. The long run market supply curve is formed by adding up individual firm supply curves in the industry.
3. If all firms are identical, output prices will never change.
4. Aggregate producer surplus in an industry is measured along the market supply curve and and only if firm production technologies exhibit the quasilinearity property.
5. If the individuals in a group of consumers have identical tastes, then the group can be treated as if it behaved as a single representative consumer.
6. A "social planner" is a fictional societal planner who would always choose the same outcome as the competitive market.
7. In a perfectly competitive market with identical firms, all surplus will be consumer surplus in long run equilibrium.
8. When price elasticity is less than -1, consumer spending increases as price falls.
9. Depending on the shape of the marginal cost curve, a monopolist might produce an output level on the elastic or the inelastic part of demand.
1.False
Economic cost refers to the monetary cost and the opportunity cost of producing an output. Both the short-run as well as long-run includes all factor cost as well as the opportunity cost though there might be some differences in accounting. Hence, it cannot be generalized that the short-run economic cost would be lesser than the long-run economic cost.
2.True
The long-run market supply curve is obtained by the horizontal summation of the individual firm's supply curve.
3.False
The firm's output price is dependent on the marginal cost and marginal revenues. Hence, any change in the cost and revenues would affect the output price of the firm.
4. False
The aggregate producer surplus is measured along with the market supply curve.
5. False
The individuals in the group with the same taste and preferences might not have the same level of income. The consumer decision largely depends on income. Hence, the entire group cannot be treated as a single entity only because of the same taste.
6.False
A social planner is concerned about the welfare of the consumers. He is not concerned about the pricing that would set the competitive equilibrium but makes a decision that would maximize consumer welfare.
7.False
Under perfectly competitive industries society maximizes the total surplus. Total surplus is the sum of consumer surplus as well as the producer surplus.
8. True
Price and quantity demanded are inversely related. Hence, price elasticity of demand= -1 would imply that a given percentage fall in the price would lead to a similar percentage increase in quantity demanded.
9. True
The rising part of the marginal cost curve serves as the supply curve for the monopolist. The monopolist decides to produce at a point where MR=MC on the rising part of the marginal cost curve.
