True or false problems about incurring loss, pure monopoly, monopolistic competitors.
Indicate whether each of the following statements is true or false and describe why.
- A competitive company which is incurring loss should immediately stop all operations (production).
- A pure monopoly does not have to worry about suffering losses because it has the power to set prices at any level of output it wants.
- In the long run, firms operating as pure competitors and monopolistic competitors will both tend to earn normal profits.
- Assuming a linear demand curve, a firm that wants to maximize its revenue will charge a lower price than a firm that wants to maximize its profits.
- If P > AVC, a firm's total fixed cost will be greater than its loss.
- When a firm is able to set its price, its price will always be less than its MR.
A monopoly will always earn economic profits because it is able to set any price that it wants to.