Question

1.

Suppose companies in a market with perfect competition are at a loss. In the long run (Choose an option)

1. new companies to establish themselves in the market, price falls and losses decrease
2. new companies to establish themselves in the market, price rises and losses decrease
3. companies to leave the market, price rises and losses decrease
4. companies to leave the market, the price fall and the losses decrease

2.

Starting from a labor market where there is monopoly. The monopoly company pays a salary that is (Choose an option)

1. equal to the marginal factor cost (MFC)
2. lower than the value of the marginal product
3. higher than the value of the marginal product
4. unacceptable to the employees

Answer 1

Question 1

In perfect competition there is free entry and exit.

If firms are incurring economic loss in the short-run then there will be exit of firms in the long run.

If firms are earning economic profit in the short run then there will be entry of firms in the long run.

In the given case, firms are incurring economic loss.

So, in long run, there will be exit of firms. This will lead to decrease in supply and would result in an increase in price.

As prices will increase, losses will decrease.

The correct answer is the option (c) [Companies to leave the market, price rises and losses decrease].

Question 2

A monopoly in the labor market hire than number of workers corresponding to which marginal factor cost curve intersects the value of the marginal product curve.

However, wage is determined with respect to labor supply curve.

Labor supply curve is below the marginal factor cost curve.

So, the salary paid byb labor market monopoly is lower than the value of the marginal product.

Hence, the correct answer is the option (B) [Lower than the value of the marginal product].