Refer to this graphs to the right, which to competitive firms. A long-run equili

Question

Refer to this graphs to the right, which to competitive firms. A long-run equilibrium is shown by A perfectly competitive market is not characterized by Assume that for a firm is perfect competition, MR-MC at an output of 40. Also, at this output, price $120, while AVC = $16, What are the firm's economic profits if is shuts-down? Consider the market for oatmeal, an inferior good. Assume that income increases. At the new equilibrium A technological improvement in the production of good A (that reduces costs) will cause the Assume the following demand and supply functions. Qd = 60 - 3P and Qs = 30 + 2P Assume that the equilibrium price for some good is $29. If the current market price is $33. In an oligopoly, price

Explanation / Answer

8.

Qd = 60 – 3P; Qs = 30 + 2P

At equilibrium price MC = MR

Qd = 60 -3P = 30 + 2P = Qs

60 – 3P = 30 + 2P. Re-arranging we get,

60 – 30 = 2P + 3P or 5P = 30,

P = 6.

Substituting 6 in place of P, we get

Q = 60 – 3P which Q = 60 – (3x6) = 60 – 18 = 42.

Q = 36.

Ans: c) The equilibrium quantity is 42.

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9. b) a shortage will cause the price to rise above $33.

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10. In an oligopoly, price

Ans: Is set by oligopolist firms such that long-run economic profits will always be positive.

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