1.) If the demand curve faced by a firm is downward sloping a. Its price must be
ID: 1126101 • Letter: 1
Question
1.) If the demand curve faced by a firm is downward sloping
a. Its price must be equal to its marginal cost
b. Its profit-maximizing price would be equal to its marginal cost
c. Its profit-maximizing price would be greater than its Marginal revenue
d. Its profit-maximizing price must be slightly less than its marginal cost
2.) In the short run, the firm will shut down if
a. The price falls short of its average fixed cost
b. The price falls short of its average total cost
c. The price falls short of its average variable cost
d. The price falls short of its marginal cost
3.) The distinguishing feature of monopolistically competitive market is
a. Many firms
b. Differentiated products
c. Free entry and exit
d. All of the above
e. Only "b" and "c"
4.) Which of the following represent the long-run equilibrium in a monopolistically competitive market?
a. P = ATC and P>MC and MC = MR
b. P = MC = ATC = MR
c. P = AVC and MC > P
d. P = MC and MR > P
5.) As new firms enter a monopolistically competitive market the existing firm's demand curve would likely become
a. More price elastic
b. Less price elastic
c. Infinitely price elastic
d. Infititely price inelastic
Explanation / Answer
Ans1) c is the correct option, its profit-maximizing price would be greater than its Marginal revenue. Marginal revenue curve falls below the demand curve where profit maximising quantity is achieved at MR=MC and the profit maximised price is determined by the demand curve.
Ans2) b is the correct option, The price falls short of its average total cost meaning revenues are less than the costs.
Ans3) b is the correct option. differentiated products, products that are highly differentiated, meaning that there is a perception that the goods are different for reasons other than price;
Ans4) b is the correct option. P= MC = ATC = MR. In the long run as there is free entry of firms if the industry is earning positive profits new firms will enter the Market till the profit is zero.
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