Question 1

If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q² operates in a competitive industry where the market demand is given by Q_D = 10,000 - 40P,the long-run equilibrium output of the individual firm's will be:

Accepted Answer

In the long-run equilibrium in a competitive market, firms produce at the minimum possible average total cost (ATC) point, which occurs where marginal cost (MC) intersects ATC. To find the long-run equilibrium output of the representative firm, we can start by finding its long-run marginal cost (LMC) and ATC. LMC = dTC/dq = 20 + 5² ATC = TC/q = 2,000/q + 20 + 5²/q Note that ² is just a constant and does not change with output or price. Next, we can set LMC equal to the market price (P) to find the output level that minimizes ATC: 20 + 5² + 40²/q = 40 Simplifying: q = (2/3)(²) Plugging in the values, we get: q = (2/3)(5) = 3.33 However, firms can only produce integer units of output, so the closest possible output level is 3 units. We can check that this is indeed the output level that minimizes ATC: ATC = 2,000/3 + 20 + 5(5)/3 = 43.33 Finally, we verify that this output level is indeed profitable for the firm: Total revenue = Pq = 40(3) = 120 Total cost = 2,000 + 20(3) + 5(5)(3) = 215 Profit = 120 - 215 = -95 Since the firm is making a negative profit with q = 3, it will not choose this output level. Instead, it will choose the next highest integer output level that still minimizes ATC: ATC(q=4) = 2,000/4 + 20 + 5(5)/4 = 38.75 Total revenue = Pq = 40(4) = 160 Total cost = 2,000 + 20(4) + 5(5)(4) = 240 Profit = 160 - 240 = -80 Again, the firm is making a negative profit, so it would not choose q = 4. The next highest integer output level is q = 5, which gives: ATC(q=5) = 2,000/5 + 20 + 5(5)/5 = 44 Total revenue = Pq = 40(5) = 200 Total cost = 2,000 + 20(5) + 5(5)(5) = 275 Profit = 200 - 275 = -75 This is still a negative profit, so we try q = 6: ATC(q=6) = 2,000/6 + 20 + 5(5)/6 = 47.5 Total revenue = Pq = 40(6) = 240 Total cost = 2,000 + 20(6) + 5(5)(6) = 310 Profit = 240 - 310 = -70 Finally, with q = 7, we get: ATC(q=7) = 2,000/7 + 20 + 5(5)/7 = 50 Total revenue = Pq = 40(7) = 280 Total cost = 2,000 + 20(7) + 5(5)(7) = 345 Profit = 280 - 345 = -65 Since q = 7 gives the highest possible output level that still minimizes ATC, this is the long-run equilibrium output level for the representative firm.

Question 2

If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q² operates in a competitive industry where the market demand is given by Q_D = 10,000 - 40P,in the long-run equilibrium there will be:

Accepted Answer

The answer of If a representative firm with long-run total...

Question 3

Producer surplus is defined as:

Accepted Answer

Producer surplus is the difference between the price received by the producer and their reservation price, which is the lowest price at which they are willing to sell a particular quantity of a good or service. It measures the benefit that producers receive from selling a product, and is calculated as the area above the supply curve and below the equilibrium price. It does not take into account taxes or the consumer's reservation price, making options A, B, C, and E incorrect.

Question 4

If the demand increases for the product of an increasing-cost industry:

Accepted Answer

In an increasing-cost industry, when demand increases, both short-run and long-run prices increase. This is because, as production expands, the costs of production also increase, leading to higher prices in both the short and long run.

Question 5

If a representative firm with long-run total cost given by TC = 50 + 2q + 2q² operates in a competitive industry where the market demand is given by Q_D = 1,410 - 40P,in the long-run equilibrium there will be:

Accepted Answer

In long-run equilibrium, P = MC = AC. The firm's MC is derived from TC, and setting MC = AC gives the equilibrium price. Solving for the number of firms using market demand and equilibrium price results in 106 firms.

Question 6

A constant-cost industry is one in which:

Accepted Answer

A constant-cost industry is characterized by input prices and technology remaining stable as firms enter or exit the industry, meaning the costs for new firms to start up and for existing firms to operate do not change significantly with the size of the industry.

Question 7

The following diagram represents the market for paperback books.In the market for paperback books,producer surplus is:

Accepted Answer

Producer surplus is the difference between the price received by producers and the minimum price they are willing to accept. In this diagram, the equilibrium price is $12.50 and the marginal cost for producers is $3.75. Therefore, the producer surplus can be calculated as (12.50-3.75) x 18, which is equal to $112.50. Therefore, the correct answer is C.

Question 8

If a representative firm with long-run total cost given by TC = 50 + 2q + 2q² operates in a competitive industry where the market demand is given by Q_D = 1,410 - 40P,the long-run equilibrium output of the industry will be:

Accepted Answer

The answer of If a representative firm with long-run total...

Question 9

The long-run supply curve for a product is horizontal with ATC = 200.Market demand is defined as P = 1,000 - 5Q.The market is competitive and is in long-run equilibrium with 40 firms in the industry.If a $50 tax is imposed on sellers,how many firms will be in the industry at the new long-run equilibrium?

Accepted Answer

The answer of The long-run supply curve for a product...

Question 10

A representative firm with long-run total cost given by TC = 20 + 20q + 5q² operates in a competitive industry where the short-run market demand and supply curves are given by Q_D = 1,400 - 40P and Q_S = -400 + 20P.If it continues to operate in the long run,its profit-maximizing level of output is:

Accepted Answer

The answer of A representative firm with long-run total cost...

Question 11

If the demand increases for the product of a constant-cost industry:

Accepted Answer

In a constant-cost industry, when demand increases, the short-run price typically increases due to immediate higher demand and limited supply. However, in the long run, as firms enter the industry to take advantage of higher profits, the supply increases, which brings the price back to its original level, keeping the long-run price constant.

Question 12

The long-run supply curve for a product is horizontal with ATC = 200.Market demand is defined as P = 1,000 - 4Q.The market is competitive and is in long-run equilibrium with 50 firms in the industry.If demand increases to P = 1,240 - 4Q,how many firms will be in the industry at the new long-run equilibrium?

Accepted Answer

In long-run equilibrium, price equals average total cost (ATC). Initially, P = 200, so Q = 200. With 50 firms, each firm produces 4 units (200/50). When demand increases to P = 1,240 - 4Q, the new equilibrium price is still 200. Solving 1,240 - 4Q = 200 gives Q = 260. With each firm producing 4 units, 65 firms are needed (260/4).

Question 13

The following diagram represents the market for paperback books.In the market for paperback books,total surplus is:

Accepted Answer

The answer of The following diagram represents the market for...

Question 14

A representative firm with long-run total cost given by TC = 2,000 + 20q + 5q² operates in a competitive industry where the market demand is given by Q_D = 10,000 - 40P.The long-run equilibrium output of the industry will be:

Accepted Answer

The answer of A representative firm with long-run total cost...

Question 15

The long-run supply curve for a product is horizontal with ATC = 400.Market demand is defined as P = 1,000 - 4Q.The market is competitive and is in long-run equilibrium with 50 firms in the industry.If demand increases to P = 1,240 - 4Q,how many firms will be in the industry at the new long-run equilibrium?

Accepted Answer

The answer of The long-run supply curve for a product...

Question 16

If a representative firm with long-run total cost given by TC = 50 + 2q + 2q² operates in a competitive industry where the short-run market demand and supply curves are given by Q_D = 1,410 - 40P and Q_S = -390 + 20P,its long-run profit-maximizing level of output is:

Accepted Answer

To find the long-run profit-maximizing level of output, we need to set the marginal cost (MC) of the representative firm equal to the market price (P) and solve for q. The long-run total cost of the representative firm can be written as: TC = 50 + 2q + 2q² Taking the derivative with respect to q, we get: MC = 2 + 2 Setting MC equal to the market price: P = MC = 2 + 2 Solving for P: P = 2 + 2 P - 2 = 2 P(1 - 2) = 2 P = 2/(1 - 2) Substituting the market price into the market demand equation: Q_D = 1,410 - 40P Q_D = 1,410 - 40(2/(1 - 2)) Q_D = 1,410 - 80/(1 - 2) Similarly, substituting the market price into the market supply equation: Q_S = -390 + 20P Q_S = -390 + 20(2/(1 - 2)) Q_S = -390 + 40/(1 - 2) At the long-run equilibrium, market demand must equal market supply: 1,410 - 80/(1 - 2) = -390 + 40/(1 - 2) Multiplying both sides by (1 - 2): 1,410(1 - 2) - 80 = -390(1 - 2) + 40 1,410 - 2,820 - 80 = -390 + 780 + 40 1,250 = 3,600 Solving for : = 1,250/3,600 = 0.3472 Substituting back into the market price: P = 2/(1 - 2) = 2/(1 - 2(0.3472)) = $3.07 Finally, substituting the market price back into the marginal cost equation: P = 2 + 2 $3.07 = 2 + 2(0.3472)q q = 5.06 Therefore, the long-run profit-maximizing level of output for the representative firm is 5 units.

Question 17

Total surplus in a market is a measure of:

Accepted Answer

Total surplus in a market is the sum of consumer surplus and producer surplus, which measures the overall welfare or benefit derived by both consumers and producers in the market. It is a measure of social welfare created by the market as a whole, rather than just the profits of the firms or the rebates received by consumers. Excess or planned inventory is not directly related to total surplus in a market.

Question 18

A decreasing-cost industry is one in which:

Accepted Answer

In a decreasing-cost industry, input prices fall or technology improves as more firms enter the industry. This leads to a decrease in the cost of production and an increase in output. As a result, the industry experiences economies of scale and firms can produce more efficiently as they grow. This leads to a downward sloping supply curve and lower prices for consumers.

Question 19

If the demand increases for the product of a decreasing-cost industry:

Accepted Answer

In a decreasing-cost industry, when demand increases, the short-run price initially goes up due to the immediate increase in demand. However, in the long run, as the industry adjusts and becomes more efficient, the costs of production decrease, leading to a fall in the long-run price.

Quiz 7: Perfect Competition

If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2 operates in a competitive industry where the market demand is given by QD = 10,000 - 40P,the long-run equilibrium output of the individual firm's will be:

If a representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2 operates in a competitive industry where the market demand is given by QD = 10,000 - 40P,in the long-run equilibrium there will be: