Question

1. Assume there is an increase in demand and an increase in supply. What can you...

1. Assume there is an increase in demand and an increase in supply. What can you tell with certainty?

Group of answer choices

The equilibrium price will decrease.

The equilibrium quantity will increase.

The equilibrium price will decrease.

The equilibrium quantity will decrease.

2. Assume the following is true for a perfectly competitive firm. At the output where MR = MC, ATC > P. Based on this information, which of the following is correct?

Group of answer choices

More information is needed to know if the firm is in the short run or long run and if it should shut down.

The firm is definitely in the long run and should shut down.

The firm is definitely in the short run, but more information is needed to know if it should shut down.

More information is needed to know if the firm is in the short run or long run, but it should definitely shut down.

The firm is definitely in the short run and should shut down.

3. Which of the following would cause a decrease in demand and a decrease in supply?

Group of answer choices

a decrease in the number of consumers; an increase in the number of firms

an expectation by consumers of a lower price; an expectation by firms of a lower price

an increase in the price of a substitute; a decrease in the price of a substitute in production

a positive change in consumer tastes; an increase in productivity

an increase in the price of a complement; an increase in taxes

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Homework Answers

Answer #1

1. An increase in demand would shift the demand curve to the right , as a result equilibrium price would increase and equilibrium quantity increase. An increase in supply would shift the supply curve to the right , as a result equilibrium price decrease and equilibrium quantity increase. So, overall equilibrium quantity will definitely increase. Hence, option(B) is correct.

2. It is given that MR=MC, ATC>P , this implies that firm is definitely in the short run because in the long run P=ATC. But more information is needed to know if it should shut down because the firm should down only when P<AVC , so information regarding AVC is neeeded. Hence, option(C) is correct.

3. An increase in the price of a complement would decrease the demand and an increase in taxes would decrease the supply. Hence, option(E) is correct.

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