Explain how you got the answers please. For Questions 2 to 4, consider that the

Question

Explain how you got the answers please.

For Questions 2 to 4, consider that the marginal cost curve is the market supply curve in a competitive market.

2. In Figure 1, perfect competition (many suppliers) would produce a quantity of ___ and charge a price of ___.

a. 100; $20

b. 100; $60

c. 180; $40

d. 180; $60

e. 240; $20

3. In Figure 1, perfection competition would increase the consumer surplus (CS) from ___ under a monopoly to ___ under perfect competition.

a. $2000; $4000

b. $2000; $5400

c. $2000; $9600

d. $4000; $8000

e. $4000; $9600

4. In Figure 1, perfection competition would increase total revenue (TR) from ___ under a monopoly to ___ under perfect competition.

a. $100; $180

b. $2400; $3600

c. $3000; $3600

d. $4800; $7200

e. $6000; $7200

5. In Figure 1, perfection competition among suppliers would generate an excess profit of _____ in the long run.

a. $0

b. $40

c. $100

d. $180

e. $240

Explanation / Answer

Q.2. AS MC curve is market supply curve, the intersection of demand and MC curve will decide the output of the market.

Thus the suppliers in perfect competition will supply 180 units at which demand curve and MC meets and the price will be charged as $40 because it is corresponding price. Thus option c is correct.

Q.3. The monopolist will charge $60 and would give output of 100. To which consumer surplus would be = 1/2 * 100 * (100-60) = 2000

But now price and output has changed. To which new CS is 1/2 * 180 * (100-40) = 5400

Hence option b is correct.

Q.4. TR under monopoly = Price * Q = 60* 100 = $6000

TR under perfect competition = 40* 180 = $7200

Hence option e is correct.

Q.5. Producers in perfect competition under long run do not earn super normal profit or excess profit. Hence option a is correct.

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