Question

25-26 28-29

QUESTION 25 There are many identical internet service providers (ISPs) in a city serving a market demand with an elasticity of -15. The elasticity of supply for each firm is 3.0. The elasticity of demand faced by an individual ISP provider is OA-1.5. OBO OC-1 OD- QUESTION 26 If a firm makes zero economic profit, then the fimm CA is indifferent between staying and exiting the industry o Bhas no incentive to stay in the industry will shut down OD is better of exiting the industry,

Answer 1

25. Since there are many identical firms, so the market is a perfectly competitive market. In such a scenario, the demand curve faced by a firm is perfectly elastic. So a small fluctuation in price will make the demand go infinite or 0. If the price rises marginally, the demand will be 0 and if the price falls marginally, the demand will be infinite. Thus the elasticity of demand is negative infinity. SO the correct option is option D. -∞

26. If the firm makes zero economic profit, it has no incentive to stay in the market. Again it has no incentive to exit the market as well since it is not making any losses. So the firm is indifferent between staying and exiting the industry. The correct option is Option A.

28. The Rise in cost of input raises the cost of production of an additional unit. SO it raises the Marginal Cost Curve. Also, since the cost of production is higher, a firm, as well as the entire market, will face an increased cost of production. So for the same price, it can supply a lower number of products. Thus the firm's supply curve and the market supply curve, both will shift to the left. So the correct option id Option D. All of the above.

29. As the firms are in a competitive market, there will be zero economic profit in the long run. So all firms will operate at a point where the Average Cost is lowest and the price will be same as the average cost of production. So the correct option is Option B. The Long run price will be 20¢ per pound.

As per HOMEWORKLIB RULES, We are not allowed to answer more than 1 question in a group of unrelated questions. However, since these are MCQ, I have answered all of them.

If you found this helpful, please rate it so that I can have higher earnings at no extra cost to you. This will motivate me to write more.