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Question

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1) Refer to the graph above, showing the long-run supply and demand curves in a purely competitive market. The curves suggest that this industry is:
a. A constant-cost industry
b. Increasing-cost industry
c. Decreasing-cost industry
d. Not possible, because the supply curve always slopes up

2) Refer to the graph above, showing the long-run supply and demand curves in a purely competitive market. The curves suggest that in this industry, the marginal benefit to consumers of each unit of the product is:
a. Constant
b. Increasing
c. Decreasing
d. Not indicated in the graph

3) Refer to the graph above, showing the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal:
a. Cost equals marginal benefit at P1Q1
b. Benefit exceeds marginal cost at an output level of Q2
c. Cost exceeds marginal benefit at an output level of Q2
d. Cost equals marginal benefit at all points on the supply curve

Explanation / Answer

The correct answer are:
1) a. A constant-cost industry
2) a. Constant (since demand and supply graphs are linear)
3) c. Cost exceeds marginal benefit at an output level of Q2 (since Demand is less than supply).

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