Question

1. Which of the following types of firms has a horizontal

demand curve? The

a. monopolist

b. monopolistic competitor

c. oligopolist

d. duopolist: Only 2 firms are in the industry.

e. pure competitor

2. If the total cost for making 400 units is $20,000 and the

total cost for 600 units is $25,000, what is the marginal

cost?

a. $5,000 b. $25 c. $50 d. $42 e. None of these

3. Which statement about cost curves is false?

a. ATC intersects MC at the lowest point of MC

b. the difference between ATC and AVC is AFC

c. AFC declines as output increases

d. the ATC is affected by diminishing returns

Answer 1

1. Pure competitor

Demand curve of a pure competitor is horizontal as pure competitor is a price taker and the price is determined by the forces of market demand and market supply. He can sell whatever amount he wishes to sell at the same price.

2. $25

Marginal cost is change in total cost divided by change in quantity.

Change in total cost=$25000-$20000=5000

Change in quantity =600-400=200

Marginal cost = $5000/200=$25

3. ATC intersect MC at the lowest point of MC

This statement is wrong because ATC intersect MC at the lowest  point of ATC and not at the lowest point of MC.