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Answer the next question(s) on the basis of the following cost data for a firm that is selling in a purely competitive market.

1.       Refer to the above data. The marginal cost column reflects:

a.       the law of diminishing returns

b.      the law of diminishing marginal utility

c.       diseconomies of scale

d.      economies of scale

2.       A purely competitive firm

Explanation / Answer

1)c)diseconomies of scale

Reason:As marginal cost is increasing with increase in output

2) a)The upward slopping portion of its marginal cost curve

Reason:The upward slopping portion of its marginal cost curve is supply curve in perfect competetion

3) d)Results in zero economic profits

Reason:In long run firm will obtain zero profit as more firms will be entering market

4)a) Economic profits induce firms to enter an industry; losses encourage firm to leave.

Reason:Due to profits, more firms enter

5) b)A decreasing-cost industry

Reason:As price of input decreased,leading to lesser cost

6)c)Prices is equal to marginal cost

Reason:as at P=MC, profit is maximised

7)c)The marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold

1)d) A welfare or efficiency loss

Reason:As there is reduction in consumer surplus.so welfare loss

2)b)Will never produce in the output range where demand is inelastic

Reason:as in this case, marginal revenue will be negative

3)b)Product price and marginal revenue

4)d)Always realizes an economic profit

Reason:as it is pure monopoly, no seller will be there

5)a)Be less than MR

6)d) non existent

Reason:in monopoly , there is no supply curve

7)The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest

1)d)Producing that output with the most efficient combination of inputs and is realizing all economies of scale.

Reason:As it lies in decreasing part of average cost curve

2) b)The regulated price which results in a

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