Question

12. Assume that "PC Clone" computer makers are price takers operating in an increasing cost industry. If demand increases, initially the PC manufacturers will be able to make economic profits. What is likely to happen to these profits with the passage of time? (There is more than one correct answer). a. They will persist as long as the demand for personal computers is high. b. As computer makers compete for inputs (chips, disk drives, engineers, etc.), they will bid up input prices, which will increase costs and reduce their profitability. c. Once consumers know that the computer makers are earning profits, they will reduce their purchases, which will lead to a reduction in demand and a lower market price. d. New PC manufacturers will enter the industry over time, which will lead to an increase in supply and a reduction in computer prices until the profits are eliminated.

13. Which of the following statements is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets? (Note for this problem, there is more than one correct answer). a. P= MC for price-taker, and P > MC for competitive price-searcher markets. b. P = MC in both price-taker and competitive price-searcher markets. c. P = ATC in both price-taker and competitive price-searcher markets, and at a point where ATC is at a minimum for price- taker markets but not at a minimum for price-searcher markets. d. Economic profits are zero for both price-taker and competitive price-searcher markets. e. Total Revenue = Total Cost for both competitive price-taker and price-searcher markets.

14. Which of the following statements about price discrimination is correct (more than one answer is correct)? a. A price discriminating firm will want to charge a higher price to the consumer group with the more elastic demand. b. A firm can usually increase its profits by price discriminating rather than charging the same price to all customers. c. Some consumers will pay a higher price when a firm is a price discriminator than would be the case if all customers were charged the same price. d. Compared to a single-price strategy, a firm that engages in price discrimination usually produces and sells a larger output. e. For price discrimination to be successful, firms generally have to be able to prevent re-sale of their products and control resentment.

Answer 1