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Quiz 3 with answers and hints

Quiz 3 with answers and hints - 1 In a competitive 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 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 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
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