Question

True of False

1. When tax is levied on the good in a competitive market, the tax revenue got by government equals the fall in producer and consumer surplus.

2. In the presence of a negative externality, Qoptimum is therefore larger that the Qmarket.

3. In the long run, monopolistic competitive firms produce at their lowest average total cost.

4. Demand curve for a monopoly firm is the market demand curve.

Answer 1

1) False. The fall in CS and PS is equivalent to the deadweight loss and this is not equal to the tax revenue

2) False. When the negative externality is found in the market there is overproduction so Qoptimum is less than market quantity

3) False. They produce at a level of output that is less than the one that minimizes the average total cost due to excess capacity

4) True. For a monopoly, there is a single seller so entire market is served by him.