Market Fim MR ATC Pr MRE Quanety Qusntity Which of the following statements is t

Question

Market Fim MR ATC Pr MRE Quanety Qusntity Which of the following statements is true of the figure above? a. The firm will be earning positive economic profits if the supply curve in the 8. market is S2. If the price facing the firm is P1, the market is in long run equilibrium. is S1 S2. S1- b. c. The firm will be earning zero economic profits if the supply curve in the market d. If the price facing the firm is P3, then in the long run market supply will shift to e. If the price facing the firm is P2, then in the long run market supply will shift to

Explanation / Answer

8. Statements c and d are true. At P1, price is equal to AVC, so the firm is not making any profits.

If supply curve is S3 then it will shift to S2 as there are increasing returns to scale at that point.

11. In monopoly situation, equilibrium is where MR=MC and price is equal to AR. So here consumer surplus id AP2c.

12. Welfare loss is CBF.

15. (a) is true as firm's average cost is continously above the demand curve, so whatever price it charges it will earn losses.

(b) is true as firm can continue to produce if price is above AVC.

(c) is also true

The answer is (d) that all above are true.

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