Answers5 - Economics 1 Name Answer Key-Problem Set 5 th(Due...

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Economics 1 Analysis, Problems, and Polices Name:____________________________________ Answer Key—Problem Set 5 (Due in class on November 12 th , 2007) I. Multiple Choice Questions 1. c) WHY? We know that Q=4000 and TR=P x Q=$200,000. Thus, P=$50. In any equilibrium a firm must be profit maximizing (MR=MC). For a monopolistically competitive firm, though, P>MR, so MC < $50 and a) is wrong. In the long run, a monopolistically competitive firm has excess capacity, meaning they are not at minimum ATC and b) is wrong. However, they do have zero profits in the long run, so TR=TC and c) is right. 2. d) WHY? We know that Q=2000 and TR=P x Q=$100,000. Thus, P=$50. In long run equilibrium we know a perfectly competitive firm must be profit maximizing (P=MC) and must be at zero profits (TR=TC and P=ATC). We also know that MC intersects ATC at the minimum. Thus, we know that all of a), b) and c) are true. 3.
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This note was uploaded on 05/29/2008 for the course ECON 1 taught by Professor Chang during the Fall '07 term at Dartmouth.

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Answers5 - Economics 1 Name Answer Key-Problem Set 5 th(Due...

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