What happens to the long-run equilibrium in the competitive market? a. In long-r

Question

What happens to the long-run equilibrium in the competitive market?
a. In long-run equilibrium, marginal firms make a positive economic profit.
b. To maximize profit, firms should produce at a level of output where price equals marginal revenue.
c. The amount of gold in the world is limited; therefore, the gold jewellery market probably has a long-run supply curve that is upward sloping.
d. Long-run supply curves are typically less elastic than short-run supply curves.

Scenario 15-1

Consider the market for water in a small town in the Old West. Assume that the only source of water is the underground aquifer that lies directly below the town. Wells are used to supply water to the entire town.

____ 29. Refer to Scenario 15-1. If dozens of residents have their own wells, which of the following statements most adequately describes the behaviour of sellers of water?
a. Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised.
b. Sellers will be able to charge a premium for the water.
c. The price of a litre of water will exceed its marginal cost.
d. The price of a litre of water will be driven to equal its marginal cost.

Explanation / Answer

1) Solution: The amount of gold in the world is limited; therefore, the gold jewellery market probably has a long-run supply curve that is upward sloping.

Explanation: Because the costs for new firms are likely to be higher compared to older firms as they'll have to discover new gold sources thus is likely that the long-run supply curve in the gold industry is upward sloping.

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2) Solution: The price of a litre of water will be driven to equal its marginal cost.

Explanation: In the long run the price equals the minimum of average total cost, thus price of a litre of water will be driven to equal its marginal cost

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