Question

Exam 2 Principles of Microeconomics Winter 2020 (1) - Microsoft Word me Layout References Mailings Review Ink Tools Pens View E3 1 u - 12 AA Aa se *, * A .A. Font 2 2. АаВЫСc| AaBbcc АаВЫС Аавьсс Аав Аавьсct Аавьсср 1 Normal 1 No Spaci... Heading 1 Heading 2 Title Subtitle Subtle Em... Change Paragraph Styles Styles 13. What happens when firms in an industry are earning positive economic profits in the short run? A. New firms enter the industry, causing a rightward shift of market supply and a decrease in market price. B. New firms enter the industry, causing a leftward shift of market demand and a decrease in market price. C. New firms enter the industry, causing existing firms to shut down. D. Customers respond to the increased profits by decreasing their demand. 14. What is true of the long-run equilibrium in perfectly competitive industries? A. Producer surplus is zero because economic profit is zero. B. Firms produce at the point where marginal cost is minimized C. Firms produce at the point of production efficiency and allocative efficiency. D. Firms are efficient, which means that the sum of producer surplus and consumer surplus is minimized. 15. In a decreasing cost industry, the: A. long-run industry supply curve is upward-sloping. B. long-run industry supply curve is downward-sloping. C. average total cost for each individual firm continually declines as more is produced. D. average variable cost for each individual firm continually declines as more is produced. 16. Economies of scale in an industry are consistent with the following? A. The ability of current firms to underprice potential new competitors B. Declining marginal cost with increasing production C. The ability of current firms to charge a price below their average total costs D. All of the above D 30%

Answer 1

13) As the firm start earning positive economic profit more firms will enter the market supply will be increased leading to supply curve shifting rightwards and resulting in equilibrium price decrease. Hence, Option A is correct

14) At perfect competition the total consumer and producer surplus maximizes with efficient allocation and efficient production at MC =MR. Hence, Option C is correct

15) In decreasing cost industry long run supply curve for the firm is downward sloping which means decreasing price per unit with increase in production. Hence, option B is correct

16) In economies of scale the cost decreases with increase in production also with this existing firms has the ability to underprice the new competitor since they have lower MC in account of economies of scale also this enambles firm to charge lower than ATC on account of economies of scale benefits Hence, option d (All of the above) is correct

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