Question

1. Assume there is a decrease in the supply of a product produced in a perfectly competitive market. All else constant, in the short run this will cause the profits of firms that produce substitutes for the good in question to increase.

True

False

2. Because it is a machine, a personal computer should be treated as a fixed input in the typical firm's short-run production function.

True

False

3. For a monopolist to earn a positive economic profit, price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.

True

False

4. For a particular product, demand elasticity is a quantitative measure that shows:

		the percentage change in quantity demanded relative to the percentage change in any of the other variables included in the demand function for that product.
		the absolute change in quantity demanded relative to the absolute change in any of the other variables included in the demand function for that product.
		the absolute change in quantity demanded relative to the percentage change in any of the other variables included in the demand function for that product.
		the percentage change in quantity demanded relative to the absolute change in any of the other variables included in the demand function for that product.

5. If the inputs to a production process are perfect substitutes and the marginal rate of technical substitution is equal to the ratio of the prices of the two inputs, the firm can choose from a virtually infinite array of combinations of the two inputs to minimize the costs of producing a given level of output.

True

False

Answer 1

Answer

1.True
As the supply of the said good will decrease, the prices will rise. This will makie many consumers shift to buying its substitutes, which will increase the profits of the substitute industry.

2.False
The computer is necessary for production , but is not part of the input. The computer is a fixed asset and will not be considered as a cost, besides the depreciation.

3. False
Price has to exceed Beyonf the ppoint where MC=ATC to earn economic profits. To earn Maximum profits then The price has to be at MR=MC.

4. the percentage change in quantity demanded relative to the percentage change in any of the other variables included in the demand function for that product.

The demand elasticity measures how quantity demanded changes in relative to the change of a certain variable.

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