Which of the following are true: a. The increasing supply curve is based on the

Question

Which of the following are true:

a. The increasing supply curve is based on the assumption that firms are price-takers and that they have a constant marginal cost

b. The decreasing demand function implies that if the price of a good increases, consumers will buy less of it.

c. The increasing supply curve is based on the assumption that firms are price-takers and that they have an increasing marginal production cost

d. In a duopoly, each firm is a price-taker

e. Social welfare is maximized when the marginal revenue is equal to the marginal cost.

f. The increasing supply function implies that if the price of a good increases, firms will produce less of it.

Explanations with them would be very helpful! Thanks in advance!

Explanation / Answer

Answers:

a) False, increasing supply means increasing marginal cost, not constant MC.

b) True, this is the reason why the demand curve is downward sloping implying an inverse relationship between quantity demanded and price

c) True, as the supply curve plots marginal costs. Thus as the supply curve is upward sloping, the increasing supply curve is based on the assumption that the firms are price takers whose quantity supplied is greater as price increases as it will allow firms to increase profits.

d) true, in a duopoly market, both firms are price takers.

e) False, social welfare is maximized when marginal social cost is equal to marginal social benefit. at MC=MR profits are maximized.

f)False, when the price of good increases, the quantity supplied of the good increases as firms have an incentive to increase production. the positive relationship between quantity supplied and price results in the upward sloping supply curve.

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