1. Public goods cannot be provided by the market. Yes- because public goods are readily accessible and the provision through the market would result to market failures. Also, public goods are non-excludable to mean that a person cannot be barred from using it and it is also non-rivalrious that is the use by one person does not reduce its accessibility to others. 2. Average fixed costs stay the same as output increases. No- average fixed costs will decrease as output increases. The more the output the lower the fixed costs. This is because in the short-run fixed costs do not vary. 3. All costs are variable in the long run. Yes- the main reason being in the long- run a firm could decide on to changing the input that is majorly labor and capital so as to achieve its major goals. Also in the case where the firm is continuously making profits it may choose to exit the market. 4. You can always increase output by adding more of a single input. Yes-Output will increase with more addition of a single input but the total production rises at an increasing rate because the marginal rate of production is also increasing. However, many firms would not want to produce at an increasing marginal rate because the cost per unit of the total production will be decreasing. 5. Marginal costs represent what it costs to produce the next unit. Yes- marginal costs are the rise or fall in the total costs resulting from the production or an extra or less unit of production. It is the extra cost of producing one more unit of production. 6. Price is equal to marginal revenue for all firms. No- price is only equivalent to the marginal revenue in the case of a firm that is functioning under the market that is perfectly competitive. The reason is firms in a competitive market gets equal value for each unit that it produces for sale irrespective of the units retailed by the firm, as the sales of the firm cannot affect the price in the market. 7. Externalities are always positive. No- externalities could either be positive or negative. This is because the production or consumption of particular goods could either benefit the third part for example education brings benefit to the society in general making a positive externality. An example of a negative externality would be air pollution from a manufacturing industry. 8. All firms produce where marginal costs equal marginal revenue. No- some firms do not produce at the point where additional cost of producing an extra unit is equal to the additional revenue that is obtained from selling an additional unit and so they make losses. 9. In the short run, firms should shut down if they can't cover their variable costs. Yes- in the short-run a firm should be able to cover its variable costs first then its fixed costs. So if it cannot cover its variable costs that it will definitely not be able to cover its fixed costs thus should shut down. 10. Perfectly competitive firms can make excess profits in the long run. No – this is because excess profits can be made in the short run which attracts more competitors which causes the prices to decrease and on reaching the long run only normal profits can be obtained. 11. Marginal product always increases as you add more inputs. Yes –because marginal product is the added output that is a result of increasing the inputs. Each time an input is increased then the marginal product will also increase. 12- Barriers to entry may impact economic efficiency Yes- because the barriers to entry are meant to prevent the firms from competitors and also to secure the profits of the firm thus it does impact on economic efficiency. 13- There is no relationship between marginal costs and average costs. No- there is a relationship between marginal cost and average cost for example when the slope of average cost equal to zero then marginal cost equal to average cost. 14. Perfectly competitive firms would sell more if they lowered their price. Yes- when prices are lowered in the perfectly competitive market there will be increased sales because setting high prices would attract competitors who would enter the market and sell at a lower price than the existing price. `````````````````````````````````````````````````````````````````` 1: Price is equal to marginal revenue for all firms. No- price is only equivalent to the marginal revenue in the case of a firm that is functioning under the market that is perfectly competitive. The reason is firms in a competitive market gets equal value for each unit that it produces for sale irrespective of the units retailed by the firm, as the sales of the firm cannot affect the price in the market. 2: The market can eliminate all discrimination. Yes- an example is the competitive market which can eliminate discrimination by hiring employees that are discriminated. Because their incomes are quite low, then the firms that are not discriminate shall have a plus over the firms that are discriminatory. 3: More education always results in higher wages. Yes- this is because in most cases education will lead to high level of productivity therefore, that calls for higher wages. 4: You can always increase productivity by adding more capital. Yes- by increasing the capital stock productivity is increased in general because the labor productivity will also increase. 5: The federal income tax is proportional. No- proportional tax system is a system that charges the same percentage of income tax on every individual regardless of the amount of income they earn. The federal tax however is either progressive or regressive. 6: Most firms advertise. Yes – most firms advertise especially those that offer customer services and also those that deal with customer products as a way to information to the general market the firms will advertise through different channels. 7: All firms try to produce where marginal revenue-marginal cost. Yes – because when marginal revenue equals to the marginal costs produce output and at that point the firm maximizes its profits. The firm is able to generate enough revenue to cover the cost incurred in production. 8: The tax on gasoline is a tax that illustrates the "ability to pay" principle. No- gasoline tax is measured based on per-gallon and the earnings are utilized for highway repairs and developments. It thus illustrates the benefit-received principle and not the ability to pay. 9: Productivity cannot explain wage differences. No- productivity level of different firms will explain the wage difference because in the case where there is high level of productivity there will be high wage and in the case where the productivity level is low there will be low wage. 10: Oligopolies can make excess profits in the long run. Yes- this is because there are barriers to entry such that when making abnormal profits other firms are prevented from entering to get the excess profits. So even in the long run the oligopoly will make excess profits. 11: Monopolistically competitive firms interact with each other. Yes- in the monopolistic competitive market there are minimal barriers to entry and exit into the market. Firms could enter and leave the market at any time and so they interact with each other. 12: Barriers to entry may impact economic efficiency. Yes- because the barriers to entry are meant to prevent the firms from competitors and also to secure the profits of the firm thus it does impact on economic efficiency.
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