Test2Answers2006 - James E. Pesando Answers Term Test 2...

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James E. Pesando Answers Term Test 2 (December 8, 2006): I (a) firm’s MC schedule: no change firm’s dd schedule (perfectly elastic): shifts upward firm’s level of output: increases firm’s level of profit: increases (from zero) For diagram, see Figure 14.8 in text. (b) No, market price will fall (to its original level, if this is a constant-cost industry). Since firms in the industry will be making economic profits after the increase in market price, new firms will enter the industry, the supply curve will shift to the right, and market price will fall. II (a) This firm’s level of profits will fall , since average total cost will increase and the market price of widgets will be unaffected. This firm’s level of output will fall , since its MC schedule will shift upward. Although this firm’s output will fall, the market price of widgets will be unaffected since, in a perfectly competitive market, each firm is so small that fluctuation in its level of output do not affect market price. (b)
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Test2Answers2006 - James E. Pesando Answers Term Test 2...

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