Suppose a firm has the following total cost function TC = 100 + 2q2. If price equals $20, what is the firm’s output decision? What are its short-run profits? What will be an ideal response? ANSWER MC = 4q. To maximize profit, set 20 = 4q, or q = 5. Profit = TR – […]
Date: September 9th, 2020
If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then A) a shortage will exist. B) a surplus will exist. C) producer surplus is maximized. D) consumer surplus is maximized. ANSWER A
Date: September 9th, 2020
If a firm in an industry experiences very high fixed costs and constant marginal cost, it is a good candidate for a natural monopoly. Indicate whether the statement is true or false ANSWER True . Average cost will fall because average fixed costs decline and marginal cost stay constant. Two or more similar firms […]
Date: September 9th, 2020
Long-run market supply curves are downward sloping if A) firms are identical. B) the number of firms is restricted in the long run. C) input prices fall as the industry expands. D) All of the above. ANSWER C
Date: September 9th, 2020
Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q2. Market demand is Q = 600,000 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a short-run profit? What will be an ideal response? ANSWER The firm’s supply is q = 0.5p; market supply […]
Date: September 9th, 2020
Markets with hit-and-run entry and exit experience A) barriers to entry. B) firms entering whenever they can make a profit and exiting when they cannot make a profit. C) steady long-run economic profit. D) a very steady number of firms. ANSWER B
Date: September 9th, 2020
If the long-run supply curve in a perfectly competitive industry is upward sloping, this is because A) firms are different. B) firms are identical. C) input prices rise as the industry expands. D) Either A or C. ANSWER D
Date: September 9th, 2020
Optimal price regulation sets price equal to A) marginal cost. B) average variable cost. C) average cost. D) minimum average cost. ANSWER A
Date: September 9th, 2020
If a firm operates at a loss, the loss is equal to TC – TR. If the firm shuts down instead, its loss is equal to FC. Given this, show that price must exceed AVC for the firm to operate at a loss and not shut down. What will be an ideal response? ANSWER […]
Date: September 9th, 2020
In the long run, profits will equal zero in a competitive market because of A) constant returns to scale. B) identical products being produced by all firms. C) the availability of information. D) free entry and exit. ANSWER D
Date: September 9th, 2020
