1. TRUE or FALSE. All credits will be assigned to explanations. (a) In a two-goo

Question

1. TRUE or FALSE. All credits will be assigned to explanations.

(a) In a two-good model, if one good is an inferior good, then the other good must be a luxury good.

(b) Montreal is going to have a cold winter and suppose supply of down coats does not change, then in the market equilibrium, the quantity of down coats will go up because demand increases.

(c) Monotonic transformations of the same production function represent the same technology.

(d) A firm’s long-run profit function is always at least as high as its short-run profit function.

Explanation / Answer

a. False, other good must be a normal good as we cannot have two bad commodities at the same time.

b. False because with supply being constant the supply curve will be vertical. In the given scenario demand curve will shift rightward. Given the supply constant price will increase qty demanded will remain at the same level.

c.TRUE, because even after monotonic transformation MRTS remains the same.

d. FaLSE , BECAUSE IN THE LONG RUN FIRMS PRODUCE AT THE LEVEL WHERE AVERAGE COST IS MINIMUM. tHUS EARNS ZERO PROFIT.

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