Economics - Economics Section 1
- A
The demand schedule faced by a firm is downward sloping, while the demand schedule faced by the market is horizontal.
- B
The demand schedule faced by a firm is horizontal, while the demand schedule faced by the market is downward sloping.
- C
The demand schedules faced by both the firm and the market are horizontal.
- Option : B
- Explanation : The demand schedule faced by a firm is horizontal, while the demand schedule faced by the market as a whole is downward sloping.
- Option : A
- Explanation : The firm is selling at $25 and the average total cost is $15. The firm is making a profit of $10 per unit. This will result in a total profit of $10,000.
| Total cost | 243 + 3Q + 6Q² |
| Average cost | 243/Q + 3 + 6Q |
| Marginal cost | 3 + 9Q |
New companies will enter the market at any price greater than:
- Option : C
- Explanation : The long-run competitive equilibrium occurs where MC = AC = P for each company. By equating MC and AC, 3 + 9Q = 243/Q + 3 + 6Q 3Q + 9Q² = 243 + 3Q + 6Q² 3Q² = 243, Q = 9 The equilibrium price can be found by using the following equation: P = 3 + 9Q = 84. Any price above 84 yields an economic profit because P = MC > AC, so new companies will enter the market. Note that the demand curve for< the market is not needed for this problem.
19. Firms most-likely have a well-defined supply function under:
- Option : C
- Explanation : Under perfect competition, the supply function is well defined and is equal to the marginal cost schedule of the firm.
- Option : C
- Explanation : Firms operating under monopolistic competition do not have welldefined supply functions, so neither the marginal cost curve nor the average cost curves are supply curves in this case.
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