Question

32. If the company E-bikes R US is a price taker, then its marginal revenue will always equal
A) price.
B) total cost.
C) zero.
D) one.

33. The company E-bikes R US operates in a competitive market. If E-bikes R US is in
short-run equilibrium, then
A) profits equal zero.
B) it will not operate at a loss.
C) an increase in its fixed cost will have no effect on profit.
D) an increase in its fixed cost will have no effect on output as long as revenue can cover its
variable cost.

34. Suppose the company E-bikes R US has the following total cost function:
TC = 10 + (0.1 ∗ q2). If there are 100 firms in this market for e-bikes that are identical to
E-bikes R US (that is, all 100 firms have the same total cost function), the market supply
curve is
A) Q = 1000 ∗ p.
B) Q = 500 ∗ p.
C) Q = 100 ∗ p.
D) Q = 10.

35. Suppose the e-bike market is competitive and in the long-run. The profits for each firm in
this market will equal zero because of
A) constant returns to scale.
B) identical products being produced by all firms.
C) the availability of information.
D) free entry and exit.

36. Suppose the e-bike market is competitive and in the long-run. Long-run e-bike market
supply curve is upward sloping if
A) firms are identical.
B) the number of firms is restricted in the long run.
C) input prices fall as the industry expands.
D) All of the above.

Answer 1

32. Ans - A) Price

Explanation:

If the company is a price taker, then its marginal revenue will always equal price. Because they are in perfect competition.

33. Ans - D) an increase in its fixed cost will have no effect on output as long as revenue can cover its
variable cost.

34. Ans - B) 500*P

Explanation:

MC = 0.2q

The firm will produce where P = MC

P = 0.2q

q = P/0.2

q = 5P

Multiply by 100 both sides as For Market supply Q, Q = 100q { 100 firms}

100q = 500P

Q = 500P

35. Ans - D) free entry and exit.

36. Ans - B)  the number of firms is restricted in the long run.

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