Question

13. Firms in a perfectly competitive firm make 0 economic profit in the long run.

True or False

14. A firm in a perfectly competitive market, finds that it's MR = MC occurs at Q = 100, at which point the market Price is $8. The firm's ATC = AFC+AVC = $6; Is the firm making a profit or loss at this point of production?

a.Loss of $200

b.profit of $600

C.loss of $600

D. profit of $200

15. A perfectly elastic demand curve has an elasticity of

a. infinity

b. 0

c. 1

d. 100

16. The Cross-Price elasticity of demand Between X and Y will always be negative if the goods are Complements.

True or False

Answer 1

13. TRUE

In a perfectly competitive market, all firms gets zero economic profit in the long run. In the long run to avoid the free entry and exit of the firms the industry determines price in such a manner so that all the firms gets only normal profits. All firms ATC equals to the AR at the profit maximising output.

14. D. Profit of $200
At the profit maximising output of 100 units, the price is $8.

The total revenue will be 100*$8= $800
At this output the average total cost is $6
The total cost will be = 100*$6= $600
Profit = TR - TC

Profit = $800 - $600 = $200

15. a. Infinity

In a perfectly elastic demand curve, the elasticity will be infinity. In this case a small change in the price, the quantity demanded changes infinitely.

16. TRUE

The cross price elasticity in case of complementary goods is always NEGATIVE. When the price of one complement good rises, the demand for another complement good decreases. Hence, the cross elasticity between complementary goods will be negative.