Question

27. In a perfectly competitive market,
A) firms can freely enter and exit.
B) firms sell a differentiated product.
C) transaction costs are high.
D) All of the above.

28. The "Got Milk?" advertising campaign is a good example of
A) advertising in a competitive market.
B) how advertising in a competitive market does not pay off for a single firm.
C) interest groups financed by the industry advertise for the whole industry.
D) All of the above.

29. A bike builder owns a bike shop earns $18,000 in revenue weekly. She pays $8,000 as
explicit costs and owns the shop so no rent is paid. The bike builder could work for other bike
shop and earn $10,000 per week. Her business profit is ________ and her economic profit is
________.
A) $10,000, $10,000
B) $28,000, $10,000
C) $10,000, $0
D) $8,000, $0

30. If the company E-bikes R US is producing at a level where losses are minimized, the
company
A) has no incentive to stay in the industry.
B) is better of exiting the industry.
C) is maximizing profits.
D) will shut down.

31. Suppose the company E-bikes R US produces bike seats and has an estimated fixed cost
of $7,000 and not sunk. The estimated variable cost for each bike seat is $20. The market
price for a bike seat is $25 each and the owner can sell 1000 bike seats at most each year. In
the long run, the owner
A) should shut down.
B) should keep operating.
C) should sell less.
D) None of the above.

Answer 1

Answer for question no.27:

The answer for the above question is option D that is all of the above options because a perfectly competitive market includes firms which can freely entry and exit, sell a differentiated product, transaction costs have no limits it can be high or low.

Answer for question no.28:

The answer for the question 28 is Option D that is all of the above options because the 'Got Milk' campaign main aims are advertising in a competitive market, how advertising in a competitive market does not pay off for a single firm, interest groups financed by the industry advertise for the whole industry.

Answer for question no.29:

The answer for question 29 is option C that is her business profit is $10,000 and her economic profit is $0. It can be explained further below:

Bike builder earns total of $18000 weekly If she pays the explicit cost of $8000 as a rent then she will left with $10,000 as her business profit.

And also it is mentioned that she could earn $10000 if she could work for other bike shops as she is not working in any other shops as mentioned in the question so her economic profit will be $0.

Answer for question no.30:

The answer for question 30 is option C that is company is maximizing profit because the company is running where losses minimized.

Answer for question no.31:

The answer for question 31 is option D that company should keep operating the products as it is earning the profit of $5000 on selling bike seats.