Question

11.

Use the following demand and supply functions to answer the question below:
Demand: Qd = 900 - 60P .
Supply: Qs = -200 + 50P .

Equilibrium price and output are:

	A.	P = $7 and Q = 480.
	B.	P = $10 and Q = 300.
	C.	P = $20 and Q = 150.
	D.	P = $100 and Q = 5,300.
	E.	None of the above.

16. In a monopolistically competitive industry in long-run equilibrium

	A.	Each firm is making a normal profit.
	B.	Each firm is producing the output at which long-run average cost is at its minimum point.
	C.	Price equals marginal cost for each firm.
	D.	All of the above.
	E.	None of the above

18. Economic profit is the best measure of a firm's performance because

	A.	Normal profit is generally too difficult to measure.
	B.	Economic profit fully accounts for all sources of revenue.
	C.	Only explicit costs influence managerial decisions since, in general, only explicit costs can be subtracted from revenue for the purposes of computing taxable profit.
	D.	The opportunity cost of using ALL resources is subtracted from total revenue.
	E.	None of the above

Answer 1

11. The equilibrium price and quantity is attained when the quantity demanded and quantity supplied are set equal to each other. The same is done in the above question and that is shown as follows :-

Qd = Qs

900- 60P = -200 + 50P

110P = 1100

P = 10

Putting the value of P in quantity demanded, we get Q = 300. Hence the correct option is B. P = $10 and Q = 300

16. The correct option is E) None of the above as all the above options are not the charecterstics of the monopolistically competitive industry. In monopolistically competitive industry, the firms are not making normal profits i.e profits are not normal as in the other industries. Also the long run Average cost is not at the minimum at the profit maximizing level of output and it is above the minimum level. Also the Marginal cost is equal to marginal revenue rather than the price. So, all the options are not correct. Hence, E) is correct.

18. Economic profit is the best measure of a firm's performance because the opportunity cost of using all resources is subtracted from the total revenue. Hence the correct option is D.