1) If market demand increases in a perfectly competitive decreasing-cost industr
ID: 1100120 • Letter: 1
Question
1)
If market demand increases in a perfectly competitive decreasing-cost industry:
new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.
new firms will enter the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall.
some firms will exit the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.
some firms will exit the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall.
4)
Suppose there is an improvement in the technology of producing TVs and the production of TVs is a competitive industry. Assuming that the TV industry is initially in equilibrium, the long-run effect of this improvement is:
higher TV prices and greater TV production.
lower TV prices and greater TV production.
higher TV prices and lower TV production.
lower TV prices and lower TV production.
6)
If the long-run market supply curve is perfectly elastic, an increase in demand will cause the final equilibrium to be at:
the original price but at a smaller output.
a higher price with a higher output.
the original price but with a higher output.
a higher price but with the same output
9)
Long-run market supply is a horizontal line in a(n):
decreasing-cost industry.
constant-cost industry.
increasing-cost industry.
perfectly competitive industry.
new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.
new firms will enter the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall.
some firms will exit the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.
some firms will exit the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall.
Explanation / Answer
Hi,
Please find the answer as follows:
1) Option B (new firms will enter the industry, factor prices will fall, and the price at which each firm earns zero economic profit will fall) is the correct answer.
Explanation:
A decreasing cost industry is the result of entry of new firms caused by an increase in demand. It pushes long run average cost curve downwards as entry of new firms bring down the prices of key resources which in turn result in lower economic profits.
4) Option B (lower TV prices and greater TV production) is the correct answer.
Explanation:
An improvement in technology will improve the production efficiencies of the firms operating in the competitive industry. This will result in higher production of TV wil lower costs.
6) Option C (the original price but with a higher output) is the correct answer.
Explanation:
The situation would result in an increase in the number of firms within the industry resulting in higher output, but price would remain at the same level since the long run supply curve is perfectly elastic.
9) Option C (increasing-cost industry) is the correct answer.
Thanks.
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