Question

1:

Demand facing an individual, perfectly competitive firm is:

	a.	perfectly inelastic at the quantity the firm chooses to produce.
	b.	perfectly inelastic at the quantity determined by market forces.
	c.	perfectly elastic at the price the firm chooses to charge.
	d.	perfectly elastic at the price determined by market forces.

2:

At the point at which P= MC, suppose that a perfectly competitive firm's MC = $100, its AVC = $80 and its ATC = $110. This firm should

	a.	shut down immediately.
	b.	continue operating in the short run
	c.	try to take advantage of economies of scale
	d.	try to increase its advertising and promotion.

3:

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:

		a: consumer demand becomes more price-elastic as departure time approaches
		b: consumer demand becomes less price-elastic as departure time approaches
		c: consumers are not aware of airline prices
		d: consumer demand is unrelated to prices

4:

The demand for textbooks is price inelastic. Which of the following would explain this?

		a: Many alternative textbooks can be used as substitutes
		b: Students have a lot of time to adjust to price changes
		c: Textbook purchases consume a large portion of most students' income
		d: Textbooks are a necessity

5:

You own a small deli that sells sandwiches, salads, and soup to the community. Which of the following is an implicit cost of the business?

		a: wages paid to part-time employees
		b: your monthly utility bill
		c: the job offer you did not accept at a local catering service
		d: bread, meat, and vegetables used to produce the items on your menu

Answer 1

1. In Perfect Competition,a single firm is a Price taker . Therefore, Given the market price , a single firm's demand curve is horizontal line at that market price  

The market demand curve slopes downward, while the firm's demand curve is horizontal indicating that the Elasticity of demand is Perfectly Elastic

Therefore, Option D is correct.

In Perfect Competition,the Demand Curve of a firm is Perfectly Elastic. Therefore Option A and B are incorrect.

Option C is incorrect because firms are Price taker.They can't charge their own Prices

2. In Short run, a firm continues to operate if Price is equal to or exceeds Average variable cost.

It shuts down when Price is less than AVC

In this case , Price= MC =$100 and AVC = $80

Since, Price is greater than AVC.

Thus,Firm should Operate in Short run

Therefore, Option B is correct

Option A is Incorrect because here Price is not less than AVC

Option C and D is incorrect because here in this Case firm is not earning any Profits

3 As the departure date comes nearer, It is known that People will not Cancel their flights as the demand becomes less Price elastic as it becomes more or less a necessity to go and at the end time it is difficult to change.

Therefore, Option B is Correct.

Option A is incorrect because as departure time approaches, Price Elasticity doesn't Increase and even it becomes less elastic.

Option C is incorrect because Consumers are rational and have enough knowledge of airlines and It has nothing to do with less or more elastic.

Option D is incorrect because Consumer demand is always related to Price.

The law of Demand States the negative/inverse relationship between Price and Demand.

4 For a student, Textbook is a necessity .

Since , The teacher assigns a textbook and in order to access to learning materials, A textbook must be purchased.

Thus,the Demand for Textbook is inelastic.

Therefore, Option D is Correct

Option A is incorrect because If Substitutes are available, demand becomes elastic rather than inelastic.

Also, If a Particular textbooks is assigned to you ,it has. Less Substitutes available.

Option B is incorrect because Students generally don't have lot of time since they have to access to the learning materials as soon as possible.

And also, if there is more time to adjust, demand is elastic and not Inelastic.

Option D is incorrect because if a product takes up a large share of A consumers budget ,even. a small percentage increase in price may make it prohibitively expensive to many buyers and demand becomes elastic rather than inelastic.

5. Implicit cost is the cost or payment not made to other. It represents an opportunity cost forgone when it chooses to do or not to do something.

Therefore, Option C is Correct because the job had to be give up in order to start own business

All the other options are incorrect because in other options payment is made to others which is an Explicit Cost