Question

C. Suppose Alex considers oranges and apples as perfect substitutes. The price of an orange is $1 and the price of an apple is $2. He is observed consuming only oranges. How many apples could give him the same level of utility as an orange?

1. 0.3 apple
2. 0.5 apple
3. 1 apple

Group of answer choices

1. Only 2.

2. Only 3.

3. 1. and 2.

4. 2. and 3.

5. 1. and 3.

6. Only 1.

7. 1., 2. and 3.

D. Suppose Pyrex is a firm in the perfectively competitive glass industry, where market demand is P = 100 − Q D and market supply is P = Q S. Pyrex is making positive profits in the short-run. What could be true about Pyrex's (short-run) A V C?

Group of answer choices

1. Exactly equal to 50

2. Larger than 50

3. Lower than 50

4. Cannot say anything without more information

Answer 1

C. Ans: Only 3

Explanation:

Since apples and oranges are perfect substitutes for Alex, it means buying 1 apple brings him the same satisfaction as buying 1 orange.

Thus, option [2] is correct answer.

D Ans: Lower than 50.

Explanation:

At equilibrium,

Demand = Supply

100 - Q = Q

2Q = 100

Q = 100 / 2 = 50

P = 100 - Q = 100 - 50 = $50

The equilibrium quantity is 50 and price is $50.

Since, Pyrex is making positive profits in the short-run, Pyrex's (short-run) AVC must be lower than 50.

Thus, option [3] is correct answer.