1. You are the chief financial officer of a firm. You determine that when your firm...

1. You are the chief financial officer of a firm. You determine that when your firm increased prices by 1%, the quantity demanded by your customers decreased by 0.1%. Demand facing your firm must be _________ and you should _________ in order to maximise total revenue.

(a) elastic; increase prices

(b) elastic; decrease prices

(c) inelastic; decrease prices

(d) inelastic; increase prices

(e) unit-elastic; leave prices unchanged

2. In a competitive market where the government has introduced a price floor above the equilibrium price, one might expect:

		(a) quantity demanded to equal quantity supplied.
		(b) excess quantity to be supplied.
		(c) a shortage to develop.
		(d) total economic surplus to be reduced.
		(e) both (b) and (d).

3. Explain why firms in perfect competition and monopolistic competition markets earn zero economic profits in the long run, while monopoly firms can earn positive economic profits in the long run.

Expert Solution

Rahul Sunny answered 2 years ago

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