1.)Suppose the wiz-pop market is in long-run equilibrium. Suddenly, fixed costs

Question

1.)Suppose the wiz-pop market is in long-run equilibrium. Suddenly, fixed costs
decrease, although variable costs remain unchanged. Discuss the short-run and long-run changes in market equilibrium.



2.)Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined as at prices below $4 and zero for prices above $4. Zach's demand for milk is
defined as at prices below $5 and zero for prices above $5. If the market price
for milk is $4.50, market demand is
A. Zero
B. 1.5
C. 1
D. 10

Explanation / Answer

1. In this short run, this will result in economic profit. This in turn will send a signal to the market and more firms will enter the market. Then in the long-run, firms will enter the market and the market will be in equilibrium with an increased quantity. There will be a lower fixed cost however, the extra quantity will incrase the marginal cost. 2. We know julia will want 0 because p is too high for her, so market demand will based on zachs demand Qd=10-2p we plug in the market price Qd=10-2(4.5) Qd=1 Answer is C

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