Look at the graph given in GRAPH folder and place your answers here. 1. Refer to

Question

Look at the graph given in GRAPH folder and place your answers here. 1. Refer to the GRAPH. When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will have what kind of profit? A) competitive profits B) economic profit C) monopoly profit D) normal profit 2. Refer to the GRAPH. Assume that the market starts in equilibrium at point A in panel (b). What will happen, in the long run, to the number of firms in the market if there is an increase in demand from Demand0 to Demand1? A) number of firms will decrease as profits fall B) number of firms will increase C) number of firms will not change 3. Refer to the GRAPH. If the market starts in equilibrium at point C in panel (b), what will happen to the number of firms if there is a decrease in demand? A) the number of firms will decrease B) the number of firms will increase C) the number of firms will stay the same 4. Refer to the GRAPH. When a firm in a competitive market, like the one depicted in panel (a), sees the market price rising from P1 to P2, it is most likely the result of ------- A) exit of the firms in the market, which shifts the supply curve leftwards B) entry of the firms in the market, which shifts the supply curve rightwards 5. Refer to the GRAPH. An increase in demand from D0 to D1 will cause the long run price to be at ------ A) Price P1 B) Price P0 C) Price P2

Explanation / Answer

1. B) economic profit 2. C) Price P2

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