Question

Suppose a price taker market has been at equilibrium until an increase in demand increases the market price. In the future, ceteris paribus, we should expect to see
a. the price stay at the higher level
b. the price goes even higher
c. the price fall
d. costs increase
e. costs decline

If a new technology increases productivity in a price taker market, we should expect to see at the next equilibrium
a. a higher price
b. a lower price
c. the same price but higher profits
d. the same price but lower profits

If output increases and MC is less than unit cost, what happens to unit cost? _____ .

a. Unit costs will rise
b. Unit costs will fall
c. Unit costs will stay the same
d. Unit costs will change, but the direction is unknown

In the 1890s, German courts were taking a very different approach to cartels and antitrust. What did the German court rule in the pulp cartel case?

a. all cartels were illegal per se
b. cartels were illegal unless licensed by the government
c. unless they were unreasonable, cartels were legal and socially beneficial
d. the government was required to prosecute cartels in criminal court
e. German antitrust laws had to be the strongest in the world

Answer 1

Q) The correct option is c. Due to increase in demand, prices shoot up in the short run. But over time remaining other things constant, price fall because consumer will be unwilling to buy at such higher price, so demand will fall. Thus eventually prices also fall.

Q) The correct option is b. If a new technology raises productivity in a price taker market then cost of production also falls. Thus decline in marginal cost also reduces prices at which quantity is sold because at price taker market price is set equal to marginal cost.

Q) The correct option is b. If with increase in output, MC is less than unit cost than unit cost must be falling. Marginal cost curve cuts unit cost at its minimum point from below and then increases in such a way that at every unit of output being produced, MC is greater than unit cost.

Q) The correct option is b. Cartel is formed with an objective to earn maximum profit by manipulating prices or quantities. They often set price level higher due to which consumers suffer. Thus government gives license to only certain cartel and regulate them regarding prices and quantities.