Question

1. Which of the following statements is false?

a. Explicit costs of using market-supplied resources entail an opportunity cost equal to the dollar cost of obtaining the resources in the market.

b. When economic profit is zero, the firm’s owners could NOT have done better putting their resources in some other industry of comparable risk.

c. If economic profit is positive, accounting profit must also be positive.

d. If economic profit is negative, accounting profit must also be negative.

e. None of the above statements is false.

2. When marginal revenue is positive,

a.         demand is elastic.

b.         marginal revenue is greater than price.

c.         decreasing price will decrease total revenue.

d.         both b and c

e.         all of the above

3. When a perfect competitive industry is in long-run equilibrium,

a          firms have no incentive to enter or exit the industry.

b.         market price is equal to minimum long-run average cost.

c.         the owners of each firm earn a return equal to the opportunity costs of their

             owner supplied resources.

d.         all of the above

e.         both a and c.

Answer 1

1. Which of the following statements is false?

option d). If economic profit is negative, the accounting profit must also be negative.

As the economic profit is derived from revenue -(explicit+implicit costs) whereas accounting profit is revenue-explicit costs only.

2. When marginal revenue is positive,

option a) demand is elastic.

3. When a perfectly competitive industry is in long-run equilibrium,

option d) all of the above

As at the long run, perfectly competitive firms break even and earn zero profits.