1. More people become convinced that wearing cotton clothing is stylish. At the
ID: 2441610 • Letter: 1
Question
1. More people become convinced that wearing cotton clothing is stylish. At the same time, the number of firms producing cotton clothing increases. As a result, the equilibrium price of cotton clothing ____ and the equilibrium quantity ____. A) rises; increases B) falls; decreases C) might rise, fall, or not change; increases D) rises; might increase, decrease, or not change E) None of the above answers are correct. 2. For a single-price monopolist that is maximizing profit, the price is A) less than marginal revenue. B) equal to marginal revenue. C) equal to marginal cost. D) greater than marginal cost. 3. Even though they may harm themselves cutting lettuce with a knife, suppose more people decide they want to eat lettuce salads. As a result, the price of lettuce ____ and the quantity ____. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 4. In the long run, a firm in perfect competition ____ make an economic profit and in the long run, a firm in monopolistic competition ____ make an economic profit. A) can; can B) can; cannot C) cannot; can D) cannot; cannot 5. If one perfectly competitive wheat farmer increases his or her production of wheat, then the market price of wheat A) rises. B) does not change. C) falls. D) more information is needed to answer the question. 6. The supply of roses is unit elastic and the demand for roses is elastic. If a tax is imposed on roses, who pays a larger part of the tax? A) Demanders pay a larger part of the tax. B) Suppliers pay a larger part of the tax. C) Demanders and suppliers pay equal amounts of the tax. D) More information is needed about whether the tax is imposed on buyers or sellers. E) More information is needed about the magnitude of the tax to determine if demanders or suppliers pay a larger part of a tax. 7. If a perfectly competitive market becomes a monopoly, then the producer ____ and consumers ____. A) is unaffected; are unaffected B) is unaffected; lose C) gains; gain D) gains; lose E) gains; are unaffected 8. If the demand for a good increases, the demand for the factors used to produce the good A) increases. B) decreases. C) stays the same. D) could increase, decrease, or stay the same.
Explanation / Answer
1. E) None of the above answers are correct.
Increase in number of firms producing cotton clothing shifts supply curve rightwards causing decrease in equilibrium price and increase in quantity.
2. D) greater than marginal cost.
Under monopoly, equilibrium quantity is where MR = MC and equilibrium price is where intersection of MR and MC meets the demand curve. This implies Price is greater than MC.
3. A) rises; increases
When more people want to eat lettuce then demand of lettuce increases in the market causing rightward shift of demand curve. This causes increase in equilibrium price and quantity.
4. C) cannot; can
As firms under perfectly competitive market are price takers and there is huge competition in the market, firms earn zero profit in the long run. So, firm cannot earn economic profit.
On the other hand, monopolistically firm can earn economic profit because of product differentiation.
5. B) does not change.
Price under perfectly competitive market is determined by the industry.
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