Question

1. A monopolistically competitive firm in long-run equilibrium:
   1. will make negative profit.
   2. will make zero profit.
   3. will make positive profit.
   4. Any of the above are possible.
   5. None of the above are possible.
2. The Cournot model of symmetric duopoly suggests that the market equilibrium position is such that:
   1. one firm is larger than the other in the final equilibrium and the largest firm produces the largest quantity of output.
   2. economic profits are zero for both firms.
   3. total industry output is the same as it would have been in a perfectly compet- itive market.
   4. all of the above.
   5. none of the above.
3. In the Bertrand model with homogeneous products,
   1. the firm that sets the lower price will capture all of the market.
   2. the Nash equilibrium is the competitive outcome.
   3. both firms set price equal to marginal cost.
   4. all of the above
   5. none of the above
4. If an individual’s labor supply curve is backward bending, then
   1. the income effect associated with a higher wage is greater than the substitution effect.
   2. the substitution effect associated with a higher wage is greater than the income effect.
   3. the substitution effect associated with a higher wage encourages more leisure.
   4. A and C
   5. B and C

Answer 1