Question 1

In an increasing cost industry, the long run supply is:

Accepted Answer

In an increasing cost industry, as the demand for the product increases and firms in the industry produce more output, the cost of production increases. This leads to an upward shift in the firms' marginal costs and thus, an upward shift in the market supply curve. Therefore, the long run supply for an increasing cost industry is upward sloping.

Question 2

If a typical firm has TC given by q²+ 5q + 25 and the price in the competitive market is 25, then:

Accepted Answer

At P = 25, TR = 25q. So, profit = TR - TC = 25q - (q²+ 5q + 25) = 20q - 25. Since q > 0, profit > 0. So, there will be entry.

Question 3

In the short- run, a competitive firm will produce some output even though its profit is negative if:

Accepted Answer

A competitive firm will produce some output as long as price is greater than or equal to the minimum value of its short-run average variable cost (SAVC). This is because the firm can cover its variable costs and contribute to some of its fixed costs, even if it is making negative profits.

Question 4

A newspaper headline asserts: "Rising demand pulls up gold prices". This headline:

Accepted Answer

The headline makes good economic sense as the basic principle of supply and demand states that when demand for a commodity (in this case, gold) increases, it leads to an increase in its price. However, it is important to note that the relationship between demand and price is not one-sided and is affected by other factors such as availability of supply, investor sentiment, and geopolitical risks.

Question 5

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂). If the prices of z₁and z₂depend on aggregate input requirements in the following way: w₁= z₁/200, w₂= z₂/200, then:

Accepted Answer

The prices of inputs z1 and z2 increase with aggregate input requirements, indicating that costs increase as production increases, characteristic of an increasing cost industry.

Question 6

Suppose that 100 firms, each with the supply function Q=0.01P are in a particular market. If the market demand is Q=10- 0.5P then the market price is:

Accepted Answer

In order to find the market price, we need to find the equilibrium point where market supply equals market demand. 
Market demand: Q=10-0.5P
Market supply: Q=0.01P
Setting market demand equal to market supply:
10-0.5P = 0.01P
Simplifying:
10 = 0.51P
P = 10/0.51
P = 19.61
Therefore, the market price is $19.61. 
None of the answer choices are correct as they do not match the calculated price.

Question 7

In a competitive equilibrium the:

Accepted Answer

A competitive equilibrium occurs where the quantity supplied equals the quantity demanded, which means there is no excess supply or excess demand. Therefore, option D is the correct answer.

Question 8

The short- run competitive equilibrium is efficient because:

Accepted Answer

The answer of The short- run competitive equilibrium is efficient...

Question 9

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂). If this is a constant cost industry, and if the prices of z₁and z₂are each $1, then:

Accepted Answer

The answer of There are 100 identical demanders of product...

Question 10

The aggregate supply curve is the:

Accepted Answer

The aggregate supply curve is a graphical representation of the overall level of production that can be produced at different price levels by all firms in the economy. It represents the horizontal sum of individual firms' supply curves, so the correct choice is D, the horizontal sum of suppliers' supply functions.

Question 11

Andrew's demand for fish is: Q_A=12- 3P. Betty's demand for fish is: Q_B=16- 4P and Cathy's demand for fish is: Q_C=20- 5P. Q is the number of pounds of fish and P is the price of fish per pound. If Andrew, Betty and Cathy are the only people living in their village, the slope of the village demand for fish is:

Accepted Answer

The answer of Andrew's demand for fish is: Q_A=12- 3P....

Question 12

Andrew's demand for fish is: Q_A=12- 3P. Betty's demand for fish is: Q_B=16- 4P and Cathy's demand for fish is: Q_C=20- 5P. Q is the number of pounds of fish and P is the price of fish per pound. If Andrew, Betty and Cathy are the only people living in their village, and if the price of fish is P=$1 per pound, then Andrew is consuming of the fish in the village?

Accepted Answer

To find out how much fish Andrew is consuming, we need to first calculate the total demand for fish in the village at $1 per pound: Q=$1, Q_A+Q_B+Q_C = (12- 3P) + (16- 4P) + (20- 5P) = 48- 12P At $1 per pound, the total demand for fish in the village is 48 pounds. To find out what percentage of this demand Andrew is consuming, we need to calculate his individual demand at $1 per pound and divide by the total demand: Andrew's demand: Q_A = 12- 3($1) = 9 pounds Percentage of total demand consumed by Andrew: (9/48) x 100% = 18.75% Therefore, Andrew is consuming 18.75% of the fish in the village. The closest answer choice is D, which says he is consuming 25%, but this is not correct.

Question 13

Andrew's demand for fish is: Q_A=12- 3P. Betty's demand for fish is: Q_B=16- 4P and Cathy's demand for fish is: Q_C=20- 5P. Q is the number of pounds of fish and P is the price of fish per pound. If Andrew, Betty and Cathy are the only people living in their village, and if the price of fish is P=$1 per pound, what is the total market demand for fish in the village?

Accepted Answer

To find the total market demand for fish, we need to add up the demand of Andrew, Betty, and Cathy at the given price of $1 per pound: Andrew's demand: Q_A=12- 3P = 12-3(1) = 9 Betty's demand: Q_B=16- 4P = 16-4(1) = 12 Cathy's demand: Q_C=20- 5P = 20-5(1) = 15 Total demand: 9 + 12 + 15 = 36 Therefore, the total market demand for fish in the village is 36 pounds. The answer is B.

Question 14

A necessary condition for an industry to be in long- run competitive equilibrium is:

Accepted Answer

In long-run competitive equilibrium, price must be equal to the efficient SAC (short-run average cost) of production, because firms have had time to adjust their production processes and eliminate any excess costs. This ensures that firms are producing at the lowest possible cost while still earning a normal profit. Marginal revenue being equal to SAC (choice A) or price being equal to SAFC (choice B) are not necessary conditions for long-run competitive equilibrium. Each firm producing at its profit-maximizing output (choice D) is a characteristic of short-run equilibrium, and is not sufficient for long-run competitive equilibrium.

Question 15

If Demand is given by P = 75 - 3Q and Supply is given by P = 12 + 4Q, then the equilibrium (Q,P)is:

Accepted Answer

To find the equilibrium, set the demand equation equal to the supply equation: 75 - 3Q = 12 + 4Q. Solving for Q gives Q = 9. Substituting Q = 9 into either equation gives P = 48.

Question 16

Suppose the total cost to produce quantity q is TC(q)= q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

Accepted Answer

The answer of Suppose the total cost to produce quantity...

Question 17

In a two- person, two- good exchange economy:

Accepted Answer

In a two-person, two-good exchange economy, the competitive equilibrium allocation is Pareto-optimal. This means that the allocation cannot be improved upon without making one of the individuals worse off. The competitive equilibrium prices may or may not be on the contract curve, which represents the set of feasible allocations based on the individuals' endowments and preferences. The competitive equilibrium allocation is not necessarily on the budget curve, which represents the set of allocations that exhaust the individuals' budgets. There is a competitive equilibrium in this economy as long as certain conditions are met, such as the individuals having convex preferences and the goods being divisible.

Question 18

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂). The market demand function is:

Accepted Answer

The market demand function is obtained by multiplying the individual demand function by the number of demanders. Since each individual's demand function is y = 10 - p and there are 100 identical demanders, the market demand function is y = 100(10 - p).

Question 19

In a perfectly competitive industry, an increase in market demand increases:

Accepted Answer

In a perfectly competitive industry, an increase in market demand increases the quantity supplied in both the short- and the long- run.

Question 20

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂). The long- run cost function for any firm is:

Accepted Answer

The correct answer is A because the long-run cost function for any firm is y*(w1 + w2).

Quiz 8: The Theory of Perfect Competition

In an increasing cost industry, the long run supply is:

If a typical firm has TC given by q²+ 5q + 25 and the price in the competitive market is 25, then:

In the short- run, a competitive firm will produce some output even though its profit is negative if:

A newspaper headline asserts: "Rising demand pulls up gold prices". This headline:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . If the prices of z₁and z₂depend on aggregate input requirements in the following way: w₁= z₁/200, w₂= z₂/200, then:

Suppose that 100 firms, each with the supply function Q=0.01P are in a particular market. If the market demand is Q=10- 0.5P then the market price is:

In a competitive equilibrium the:

The short- run competitive equilibrium is efficient because:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . If this is a constant cost industry, and if the prices of z₁and z₂are each $1, then:

The aggregate supply curve is the:

A necessary condition for an industry to be in long- run competitive equilibrium is:

If Demand is given by P = 75 - 3Q and Supply is given by P = 12 + 4Q, then the equilibrium (Q,P) is:

Suppose the total cost to produce quantity q is TC(q) = q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

In a two- person, two- good exchange economy:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . The market demand function is:

In a perfectly competitive industry, an increase in market demand increases:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . The long- run cost function for any firm is:

Quiz 8: The Theory of Perfect Competition

In an increasing cost industry, the long run supply is:

If a typical firm has TC given by q2 + 5q + 25 and the price in the competitive market is 25, then:

In the short- run, a competitive firm will produce some output even though its profit is negative if:

A newspaper headline asserts: "Rising demand pulls up gold prices". This headline:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z1,z2) . If the prices of z1 and z2 depend on aggregate input requirements in the following way: w1 = z1/200, w2 = z2/200, then:

Suppose that 100 firms, each with the supply function Q=0.01P are in a particular market. If the market demand is Q=10- 0.5P then the market price is:

In a competitive equilibrium the:

The short- run competitive equilibrium is efficient because:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z1,z2) . If this is a constant cost industry, and if the prices of z1 and z2 are each $1, then:

The aggregate supply curve is the:

A necessary condition for an industry to be in long- run competitive equilibrium is:

If Demand is given by P = 75 - 3Q and Supply is given by P = 12 + 4Q, then the equilibrium (Q,P) is:

Suppose the total cost to produce quantity q is TC(q) = q2/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

In a two- person, two- good exchange economy:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z1,z2) . The market demand function is:

In a perfectly competitive industry, an increase in market demand increases:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z1,z2) . The long- run cost function for any firm is:

If a typical firm has TC given by q²+ 5q + 25 and the price in the competitive market is 25, then:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . If the prices of z₁and z₂depend on aggregate input requirements in the following way: w₁= z₁/200, w₂= z₂/200, then:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . If this is a constant cost industry, and if the prices of z₁and z₂are each $1, then:

Suppose the total cost to produce quantity q is TC(q) = q²/10+250. If this firm is a price- taker and the market price is p = 10, then the firm's output will be:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . The market demand function is:

There are 100 identical demanders of product y, and the demand function for each individual is y = 10 - p. The production function for any firm is y = min(z₁,z₂) . The long- run cost function for any firm is: