1.

A decrease in the price of a product and an increase in the number of buyers in the market
affect the demand curve in the same general way

 False because a decrease in the price will increase the quantity demanded (the D curve stays
the same) while an increase in the number of buyers in the market will change the D curve.

2. In competitive markets, firms that raise their prices are typically rewarded with larger
profits

 False because in competitive markets, firms that raise their prices cannot sell their products

3. A monopolist produces where P = MC = MR

 False because a monopolist produces where MC = MR < P

4. A decrease in the price of a compliment will shift the demand curve for a good to the left

 True because a decrease in the price of a compliment will lead to a decrease in the demand for
a good.

5. In the short run a competitive firm should exit the industry if its marginal cost exceeds its
marginal revenue

 False because in the long run, a competitive firm should exit the industry if its marginal cost
exceeds its marginal revenue

6. A monopolist produces an output level where marginal revenue equals marginal cost and
charges a price where marginal cost equals average total cost

 A monopolist produces an output level where marginal revenue equals marginal cost
and charges a price where marginal cost IS BELOW average total cost.

 monopolist will have a profit-maximizing output when the marginal revenue

equals the marginal cost. It will always set the price of its product greater than the
marginal cost. In the long-run, the monopolist makes sure that it is above the
average total cost. This is due to its high market power. A firm is considered to have
a market power when it can influence the supply and demand of the product. As a
result, a monopolist will earn an economic profit even in the long-run.

7. An increase in supply will cause a decrease in price, which will cause an increase in
demand
 False because an increase in supply is demonstrated by a rightward change in the supply
curve. This shift will result in a decline in the EP and an increase in the EQ. If the EP should
decline, the quantity demanded will increase. An increase in the quantity demanded is shown as
a movement along the demand curve, not a shift in the demand curve.

8. The shape of the marginal cost curve tells a producer something about the marginal
product of her workers.

 True because the MC curve shows the extra cost required for every additional unit
produced, which has an inverse relationship with the marginal product of workers. A
steeper MC curve suggests that lower costs are required to produce an additional good,
which implies that the marginal product of labor is relatively low. A flatter MC curve
suggests that lower costs are required to produce an additional good, which implies that the
marginal product of labor is relatively.

9. A popular resort restaurant will maximize profits if it chooses to open during the less-
crowded “off-season” when its total revenues exceed its variable cost

 True because whether or not they open during less-crowded “off-season”, they would have to
take the fixed cost.

10. If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the
price must have decreased by 3%

−6 %
 True because we have Δ P = Δ Q / Edp = = -3%
2

11. Price will rise to eliminate a shortage

 True because shortage occurs when the price of a product is below the equilibrium price.
Therefore, as price rises, quantity demanded falls and quantity supplied rises, which might
eliminate the shortage.

12. If the marginal cost of producing the 10th unit of output is $2.50, and if the average total
cost of producing the 10th unit of output is $3, then at 10 units of output, average total cost
is rising.

 False because at the 10 units of output, average total cost is declining.

13. A firm is currently producing 100 units of output per day. Manager report to the owner
producing the 100th unit costs the firm $5. The firm can sell the unit for $6. The firm
should produced more than 100 units in order to maximize profit (or to minimize it losses)

 True because in that case, if the production increases, the profits will increase too.

14. A price ceiling set above the equilibrium price causes a surplus in the market
 True because when a price ceiling is set above the equilibrium price, the QD < QS, which leads
to a surplus.

15. If the marginal cost of producing the 10th unit of output is $3, and if the average total cost
of producing the 10th unit of output is $2, then at 10 units of output, average total cost is
rising.

 True because MC > ATC, leading to a rise in ATC

16. When the price of knee braces increased by 25%, the Brace Yourself Company increased
its quantity supplied of knee braces per week by 75%. BYC’s price elasticity of supply of
knee braces is 0.33

 False because Edp = Δ Q / Δ P = 75% / 25% = 3.

17. A price ceiling set below the equilibrium price cause quantity demanded to exceed
quantity supplied

 True

18. Firms operating in perfectly competitive markets produce an output level where marginal
revenue equals marginal cost.

 True ( at Qmax )