1)aWhich of the following is the correct sequence of events following a decrease
ID: 1152563 • Letter: 1
Question
1)aWhich of the following is the correct sequence of events following a decrease in demand for a product in a perfectly competitive market?
A decrease in the price and in the total profits of the representative firm which causes new firms to enter the industry.
A decrease in the price and in the total profits of the representative firm which causes firms to leave the industry.
A decrease in the price but an increase in the total profits of the representative firm which causes new firms to enter the industry.
An increase in the price but a decrease in the total profits of the representative firm which causes firms to leave the industry.
30.
50.
70.
90.
100.
A decrease in the price and in the total profits of the representative firm which causes new firms to enter the industry.
A decrease in the price and in the total profits of the representative firm which causes firms to leave the industry.
A decrease in the price but an increase in the total profits of the representative firm which causes new firms to enter the industry.
An increase in the price but a decrease in the total profits of the representative firm which causes firms to leave the industry.
b)Graph A shows the market demand and supply in a perfectly competitive market. Graph B shows the cost curves of a representative profit-maximizing firm in that industry.
Refer to the above graph to answer this question. If the market is in equilibrium, what quantity will the firm produce?
30.
50.
70.
90.
100.
$900 800 700 600 500 400 300 200 100 $900 800 700 600 500 400 300 200 100 ATC AVC 0 1 2 3 4 5 6 7 8 910 0 20 40 60 80 100 120 Quantity per period Quantity per period (In thousands)Explanation / Answer
Q1. Answer is A decrease in prices and the Total profits of the representative firms which causes the firm to leave the industry. Q2. Answer is 50. Explanation: The Market is in equilibrium at a price of $400. Where demand cuts supply curve. At a price of $400 and a straight MR curve is drawn on the representative form. The MC curve cuts the MR curve from below and from that point the perpendicular is drawn at X-axis. Which shows the equilibrium Quantity to be 50.
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