14. Free competition is not compatible with a. Many buyers b. Horizontal demand
ID: 1119707 • Letter: 1
Question
14. Free competition is not compatible with a. Many buyers b. Horizontal demand function for the firm c. Increasing return to scale d. Full information e. Homogeneous product 15. The cost function of a firm is given as C(a)-32+3q+24. What is its minimum Average Cost? a. 18 b. 19 c. 26 d. 35 e. 41 In the following questions: 16 and 17 assume a production of the type x=AK" . 16. Suppose that -0.3 and -0.2. The initial output of this production function was 150. If the firm increase by 3 its scale of operations (ie, -3), the new output would be approximately a. 154 b. 260 c. 271 d. 346 e. 600 17. Suppose that -0.5 and -05, A-1, K-25, P.-180 and PL-15 and the firm sells its product in a free competition market. The quantity demanded of laborers is a. 360 b. 450 c. 900 d.1260 e. None of the above 18. A profit maximizing price discriminating firm markets its product in two different countries: A and B. The price elasticity in country A is-2 and in country B it is-4. Suppose that the marginal cost is 72 The optimal prices in country A and B would be a. PA= 96, PB-72 b. PA-144, PB-96Explanation / Answer
First question is answered below
14. Correct option: (c) Increasing return to scale
Reason: In case of perfect competition market, there are large number of buyers and sellers selling the same product at same market price. Both parties have complete information of the product and the demand curve faced by each firm is horizontal because of firms taking market price as fixed and large number of buyers who can easily jump to other producer in case of price variation.
However, if firms have increasing returns to scale, their MC will be different for each firm, thereby reducing the feature of same price charged by each firm, thereby reducing their identical nature.
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