Quiz 3 with answers and hints

Quiz 3 with answers - 1 In a competitive market the firms demand curve is and the market demand curve is a downward-sloping horizontal b market

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1. In a competitive market, the firm’s demand curve is _____ and the market demand curve is ______. a. downward-sloping; horizontal. b. market demand divided by the number of firms; perfectly elastic. c. horizontal; downward-sloping . d. horizontal; horizontal. e. downward-sloping; downward-sloping. [Hint: T&F p. 190] 2. When firms exit an industry a. market supply decreases, increasing price and bringing firms back into the industry. b. market supply decreases, decreasing the firm’s output price. c. market supply decreases, pushing market price higher. d. market supply increases, profits of remaining firms typically fall. e. market supply increases but price decreases [Hint: T&F p. 194] 3. Suppose a competitive industry is in long-run equilibrium. If tax on profit rises, some firms will ___, and the remaining firms’ long-run profit will ____. a. exit; fall. b. enter; fall. c. exit; not change. d. exit; rise. e. enter; rise. [Hint: the opposite situation to Figure 9.5 on p. 197] 4. Suppose a constant cost competitive industry is initially in long-run equilibrium. When demand increases, market price a. rises in the short run and rises more in the long run. b. rises in the short run and falls to its initial level in the long run. c. decreases in the short and decreases more long run. d. decreases in the short run and rises in the long run. e. rises in the short run and falls below its initial level in the long run. [Hint: T&F p.192] 5. If, at the optimum level of output, a typical competitive firm’s ATC is higher than the market price, in the long run the firm a. should maintain its output and maximize profit. b. should decrease output. c. should increase output and decrease the price. d. should increase the price. e. would exit this industry. [Hint: T&F p.194] 6. In a long-run equilibrium a perfectly competitive firm produces where a. price equals marginal cost. b. average total cost is at a minimum.
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This note was uploaded on 08/18/2011 for the course ECON 1001 taught by Professor - during the Three '07 term at University of Sydney.

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Quiz 3 with answers - 1 In a competitive market the firms demand curve is and the market demand curve is a downward-sloping horizontal b market

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