1. Determine whether each of the following statements is true or false and explain why you think so.
a) In perfectly competitive market, the long-run supply curve is downward sloping in decreasing cost industry.
b) The marginal revenue for a perfectly competitive firm is equal to the market price. The marginal revenue for a monopolist is greater than the market price for positive quantities of output.
c) To calculate the Lerner Index for a particular firm, you need to know price and quantity of output for that firm.
d) Assume that the monopolist’s marginal cost is positive at all level of output. The monopolist always produces in the elastic region of the demand curve.
With a decreasing cost industry, the increase in the output reduces the cost of production of the firm. So, with a falling prices of inputs, the output increases. Hence, the long run supply curve is downward sloping.
In perfectly competitive firm, the demand curve is horizontal. The P = AR = MR
Under monopoly, equilibrium occurs at MR = MC. And the corresponding equilibrium price is on the demand curve which is higher than MR. MR < Price
So, 2nd statement is False
Lerner Index = (P - MC)/P
So, only MC should be known in order to calculate the index
Monopolist always produces in the elastic portion of the demand curve. If the firm starts to operate in the inelastic region, then total revenue would fall and the monopolist would not able to survive in the market.
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