micro

Posted on Jan 5, 2018 in Language

1: According to the text, standard economic models, based on self-interest where calculations appear to be made for every decision; provide good predictions of behavior even if they don’t describe what actually happens. Microeconomics is primarily the study of how; people choose among alternatives. Here are the costs of going to college: tuition $5,000; books $200; housing $1,000; food $1,000; lost income from work $10,000. Studying and work are equally desirable in your mind. Suppose you must live on your own anyway. What is the cost of going to school?; $15,200.

2: If the supply curve is S, at a price of $4 there will be a; surplus of 2. If the supply curve is S, at a price of $2 there will be a; shortage of 2. Most economists are against rent control because it; discourages the building of new apartments. A hailstorm kills all of the wheat in Minnesota. What will happen to the price and quantity of wheat sold in the U.S.? Equilibrium price rises, equilibrium quantity falls. The price of peanut butter rises due to a blight on the peanut crop; peanut butter and jelly are complements. What happens to the equilibrium quantity and price of jelly? Equilibrium price falls, equilibrium quantity falls. A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive. What would you expect to happen to the equilibrium price and quantity of ink jet printers? Equilibrium price will fall, but the effect on quantity is uncertain. A long hot summer has increased the demand for beer; at the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol? Equilibrium price rises; equilibrium quantity is unknown. Pizza and beer are complements. The price of beer increases. What happens to the market for pizza? Equilibrium price falls; equilibrium quantity falls. Let demand be given by P = 20 – 3Q and supply by P = 5 + 2Q. Equilibrium quantity will be: 3. Which of the following represents a change in the quantity demanded? People buy more computers as prices fall.  Let supply be given by Q = -7.5 + 0.5P and demand by Q = 10 – 0.2P. What will be the equilibrium price in this market? 25; Say the market for cereal is initially in equilibrium when all the major newspaper published the findings from study that say that eating 2 cups of cereal each day significantly reduces the risk for a heart attack. Other things equal, the publication of these findings will: increase the quantity supplied of cereal. If the government wishes to raise revenue by taxing cigarettes, it; makes no difference whether the consumer or the producer actually transfers the money to the government since the market effects are the same. Let supply be given by P = 5Q and demand by P = 19 – 2Q. Suppose we now place a tax of 5 per unit of output on the seller. The new supply curve is: P = 5 + 5Q; Let supply be given by P = 5Q and demand by P = 19 – 2Q. Suppose we now place a tax of 5 per unit of output on the seller. The new equilibrium quantity is: 2 Let supply be given by P = 5Q and demand by P = 19 – 2Q. Suppose we now place a tax of 5 per unit of output on the seller. The new equilibrium price is: 15 Let supply be given by Q = -7.5 + 0.5P and demand by Q = 10 – 0.2P. Suppose we now place a tax of $7 per unit of output on the seller. The new equilibrium price will be: 30 A increase in demand coupled with a simultaneous and bigger decrease in supply will cause equilibrium: Price to go up and quantity to go down A large increase in the supply of HD-TV sets occurs simultaneously with a smaller decrease in its demand. As a result the equilibrium price will: Decrease and the equilibrium quantity will increase Refer to the above table. If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government’s total support payments to producers would be: $4,000 per week A government will create a surplus in a market when it: Sets a price floor above the equilibrium price In a competitive market illustrated by the diagram above, a price floor of $25 per unit will result in: A surplus of 200 units In a competitive market illustrated by the diagram above, a price ceiling of $25 per unit will result in: The market stays at equilibrium price of $15

3: An increase in the price of one good will cause; an inward rotation of the budget curve. An increase in income with no changes in the price of either good will cause; an outward shift of the budget curve. Which of the following are most likely to have indifference curves that are L-shaped? Your textbook and its study guide. I prefer 10 apples and 6 oranges to 9 apples and 3 oranges. This is an example of; more is better. The budget constraint shown below is consistent with a pricing strategy that involves a; price increase of X for large quantities. Bundles that lie above the indifference curve are preferred to bundles that lie below. This is an example of; more is better. A diminishing marginal rate of substitution implies that indifference curves are; convex. Perfect substitutes will have indifference curves which are; linear (a straight line). If the consumer is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is purchasing; too much food for utility maximization. Say a consumer considered soy milk and skim milk perfect substitutes of each other at a ratio of 1:1. If the skim milk is cheaper than soy milk this consumer would buy; just skim milk. Say a consumer always consumed peanut butter and jelly in fixed proportions (for a perfect peanut and jelly sandwich). Then the indifference curves for peanut butter and jelly for this consumer would be; L-shaped. Say a consumer is choosing between wine and cheese. The price of wine is 10 and the price of cheese is 5. If the marginal rate of substitution is 4, and if wine is on the horizontal axis and cheese is on the vertical axis then the consumer is purchasing; too much cheese. Say a consumer is choosing between red wine and white wine. The price of red wine is 20 and the price of white wine is 10. If the marginal rate of substitution is 1, and if red wine is on the horizontal axis then the consumer is purchasing: Too much red wine; Refer to the above graphs. Which graph shows a change in the price of X, but no changes in the price of Y and in the buyer’s budget? Graph B; Refer to the above graphs. Pizza and beer are the only two goods Jon consumes. The price of beer is $2.00 per pitcher and pizza is $1.25 per slice. If Jon has only $10 to spend for the evening, which graph represents the set of possible combinations of beer and pizza that he can buy? Graph A; An indifference curve shows: All combinations of two products from which the consumer derives a specific level of total utility; The marginal rate of substitution of beef for chicken is the: Number of units of chicken the consumer is prepared to give up to obtain one more unit of beef. Refer to the above table. In moving from combination b to c, the consumer: Gives up 4 units of X for 1 unit of Y; Given the indifference curve and budget line above, this individual: Is indifferent between A and B, but A costs less; In the diagram above, suppose the consumer is currently exhausting his or her income at a point where the marginal rate of substitution of apples for oranges is greater than ⁵/₄. That is, MU_A/MU₀ > ⁵/₄. To maximize utility, the consumer should move from point: a to e; Refer to the diagram where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. The equilibrium position for the consumer is at: point K. Refer to the diagram where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. If the consumer is initially at point L, he or she should: purchase more of Y and less of X. Refer to the diagram where xy is the relevant budget line and I₁, I₂, and I₃ are indifference curves. At point K: MRS = P_x/P_y.

4.1 An Engle Curve: always slopes down for an inferior good; The income effect: moves in the opposite direction from the substitute effect for an inferior good; For a Giffen good, the income effect is: greater than the substitution effect; The demand curve for a Giffen good: slopes upward; One aggregates individual demand curve by adding: horizontally; The substitution effect of a Giffen good is: negative; Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield: an income effect but no substitution effect; If a good is normal and its price decrease: the income effect will be positive and the substitution effect will be positive a good is inferior and its price decrease: the income effect will be negative and the substitution effect will be positive; Suppose U = min (x,y) and the price of x is 1, the price of Y is 1 and the income is $12. If the price of X increases to 2, the income effect is: -2; If a good is a Giffen good and its price increases: the income effect will be positive and the substitution effect will be negative; Consumer 1 has a demand curve equal to P=20-2Q. Consumer 2 has a demand curve equal to P = 20-Q. What is the market demand curve: P = 20 – .67Q; The substitution effect of a price decreases for a good with a normal indifference curve pattern is graphed by: drawing a new budget ling tangent to the original indifference curve but at the slope of the new price of the good

4.2: For a demand function P= 24-6Q, demand: is elastic at price 16; If the demand for widgets is inelastic, revenues will: increase: if the price of widgets increases; The point on a linear demand curve where revenue is maximized is where: elasticity equals -1; Which of the following is likely to increase the elasticity of demand for a good: a decrease in the availability of close substitutes; A vertical demand curve is: perfectly inelastic; A horizontal demand curve is: perfectly elastic; The cross price elasticity of demand for complements is: negative; If you own a kiosk where you sell shirts to other students, after conductive a quick survey you find that at the current price, the price elasticity of demand for your shirts is inelastic. Knowing this, if you wanted to increase total revenue from selling shirts you should: increase the price; there has been discussion over whether marijuana should be legalized. Assume that if it becomes legal, the price will be cut in half. Given your estimate of -1, price elasticity for marijuana, what would you expect to be the change in marijuana usage: increase by 50%; The price elasticity of demand for a popular sporting event is 2. If the price of a ticket to this event increase by 10%, quantity of tickets demanded will: decrease by 20%; If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded then: the price elasticity of demand is zero; When the price of movie tickets in a certain town was reduced, the move-theaters’ revenue did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of: 1.0; In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic: The different brands are almost identical. I always buy the cheapest; If a 10%  increase in the price of one good (A) results in an increase of 5% in the quantity demanded of another good (B), then it can be concluded that the two good A and B are: Substitute goods; A 3% percent increase in the price of tea causes a 6% increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is: +2.0; The income elasticity of demand for food is roughly 1. A consumers monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount shell spent on food will be: $800 per month; If the income elasticity of demand is 0.5, the good is: a necessity; The price elasticity of demand for a linear demand curve follows the pattern (moving from high prices to low prices): elastic, unit elastic, inelastic; For the demand curve, P=15-3Q, at a quantity of 4, the price of elasticity is: unit elastic

6: For the average person, insurance is: an unfair gamble; Persons whose utility functions are concave with respect to wealth are said to be: risk-averse; Which of the following gambles should be considered more attractive: If head, you win $9;if tails, you lose $6; A gamble in which you win D dollars if the coin comes up heads, but lose D dollars if the coin comes up tails has an expected value of: 0; The utility function of wealth for a risk-seeker has: an increasing slope as wealth rises; A risk-neutral consumer: is indifferent between accepting and refusing a fair gamble; Assuming there is no pleasure in the gambling process, a risk-averse person with perfect information will: always refuse a fair gamble; Your utility function is given by U = M^2. You are: a risk-seeker; Faced with the gamble: heads you win $100, tails you lose $50. We would predict that a risk-neutral person would: take the gamble; Your utility function is given by U = M^1/2. You have a choice: take $100 in cash or flip a coin. If you flip a coin, the outcomes are as follows: heads, you win $225; tails, you win $49. You will: take the gamble; You are given the following gamble; behind one door is $100; behind another is $0. What is the expected value of the gamble: $200; Your utility function is given by U = M^1/2. What is the expected utility of the following coin toss: heads you win $81, tails you win $100: 9.5; One thousand tickets are sold at $1 each for a color television valued at $350. What is the expected value of the gain if a person purchases one ticket: -$0.65;  If the slope of a person’s utility function for different money prizes is linear, the person: is indifferent to risk; For a large group of individuals, the proportion of people who will have accidents is: extremely predictable; Someone who is risk neutral: will buy insurance only if the insurance company sells it at cost; My watch is worth $100. There is a 25% chance that it will be stolen from the locker room when I play racquetball. My utility function for money is U = (money)².   On the basis of this information the expected value of my watch is( insert) and the expected utility from my watch is (insert): 75, 7500; My watch is worth $100. There is a 25% chance that it will be stolen from the locker room when I play racquetball. My utility function for money is U = (money)².  I am able to buy an insurance policy to cover my watch against theft. How much would I be willing to pay for the insurance: 13.40

8.1 When Thomas Malthus argued that the prospects for human flourishing were gloomy and that starvation would eventually become the normal human condition, he was assuming that: diminishing returns to production will become more apparent. When the marginal product curve lies above the average product curve; the average product curve must be rising. When the marginal product curve lies below the average product curve, the average product curve must be falling. On this chapter quiz for this course you can study for up to four hours. If you don’t study at all you will get a 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in? The second because your gain is less than the previous hour. Plant 1 has a total product of 100 produced by 10 workers. Plant 2 has a total product of 100 produced by 8 workers.  if we know that an 11th worker in plant 1 would add 4 units of output and a 9th worker in plant 2 would add 3 units it is then clear that added output should be produced by; Plant 1 because the marginal product of the last worker is higher. The shape of the typical short-run production function of a factory has first a range of employment where increasing returns exist and then a range of employment where diminishing returns exist because; the factory has too few workers for its size at low output levels so as the number of workers increase the mix of capital and labor inputs is more desirable and increasing returns result. However, as labor increases the factory has too many laborers to be efficient. The general rule for allocating a productive resource efficiently across different production activities of the same product, like fishing boats in the text case example, is to choose the allocation for which the; marginal product of the resource is the same in every activity. If the owner of an ice-cream stand told a student looking for summer work that he would not hire him even if he worked for nothing, we can infer that; the marginal product of the labor is zero or less. Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis? A change in production to a redesigned and retooled facility; When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the: Average product of labor; When the total product curve is falling, the: Marginal product of labor is negative. Over the range of positive, but diminishing, marginal returns for an input, the total product curve: Rises at a decreasing rate. Refer to the above table. Diminishing marginal returns sets in with the addition of the: Third unit of input; Refer to the above table. There are negative marginal returns when the: Ninth unit of input is added. Refer to the above table. Marginal product is zero when the total product is: 58. Refer to the above graph showing the marginal product (MP_L) and the average product of labor (AP_L). At which quantity of labor employed does diminishing marginal returns set in? B. Refer to the above graph showing the marginal product (MP_L) and the average product of labor (AP_L). At which quantity of labor employed is total product maximized? D

Ch 8.2 If capital and labor are perfect substitutes in a production function, the isoquants for this function will be; a straight line. Say you own a Mexican place that produces, among other things, Mexican burritos. The marginal product of your last worker was 5. If the marginal rate of technical substitution between capital and labor is 0.5, then marginal product of capital is: 10. Suppose that at a firm’s current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be 20. In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles. From this information we know that the production of bicycles exhibits; decreasing returns to scale. Which of the following production functions exhibits increasing returns to scale? Q = K^l/2L^2/3 The defining characteristics of increasing returns to scale may be summarized as; F(cK,cL) > cF(K,L). Suppose the production function for widgets is Q = (KL)^½. If capital is fixed at 4 units, what is the marginal product of labor when you produce 10 units of output? 0.2. If the isoquants of a production surface are sequenced from the origin outward with the numbers, 100, 300, 600, 800, 1000, 1200, 1300, we; Cannot know anything about the returns to scale without information about the inputs. Isoquants are negatively sloped because; labor and capital are substitutes in production. A firm’s isoquant shows; the various combinations of capital and labor that will produce a given amount of output. For a fixed proportion production function, the vertex of any isoquants the marginal productivity of either input is; zero. A technical innovation in the production of automobiles by Ford Motor Company for 1 million cars per year would; shift the “1 million car” isoquant toward the origin. The marginal rate of technical substitution of labor for capital measures; the amount by which the capital input can be reduced while holding the quantity produced constant when one more unit of labor is used. When isoquants get progressively further apart as inputs increase proportionately, there is; decreasing returns to scale. When isoquants get progressively closer together as inputs increase proportionately there is; increasing returns to scale. A rise in the average productivity of labor; reflects technical progress if other input usage hasn’t changed. Suppose Q = K^αL^β, if α+β > 1, the isoquants will be; progressively closer together at higher quantities. Suppose Q = KαLβ, if α+β < 1, the isoquants will be; progressively further apart at higher quantities.

9.1: Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total cost of producing 80 units of output? $225; Say at the current output level marginal costs = $20 and the average total cost = $10. From this information we know that the; average total costs are increasing. In order to divide a given production quota between two production processes in such a way as to produce the quota at the lowest possible cost, one should produce the output where; marginal costs are equal in both processes. The Short run MC curve slopes upward due to; diminishing returns. Suppose you have the following values for a short-run production process: Q = 20, VC = 100, FC = 600 and MC = 40. Given this, we know that the average cost curve must be increasing. Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. Which of the following is a true statement? Average total cost at an output of 50 is 11. Refer to the data. The marginal cost of the fifth unit of output is: $80. Which of the following is a short-run adjustment? A local bakery hires two additional bakers. Refer to the diagram. At output level Q: marginal product is falling. Marginal cost: equals both average variable cost and average total cost at their respective minimums. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm’s total fixed costs are: $5,000. If a firm decides to produce no output in the short run, its costs will be: its fixed costs. Refer to the data. The total variable cost of producing 5 units is: $37. Refer to the data. The average fixed cost of producing 3 units of output is: $8. In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm’s total costs: are $1,250. In the short run, total output in an industry: Can vary as the result of using a fixed amount of plant and equipment more or less intensively. Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of: $500,000 and an economic profit of $200,000. If the marginal cost curve of one factory is MC = 10Q and a second factory producing the same product has a MC = 15Q, then if you want to produce 25 units of output you should produce ___ in factory 1 and ____ in factory 2; 15, 10.  

9.2 Given input prices and the usual strategy of a profit-maximizing firm, efficient production occurs at; the lowest isocost C for a given isoquant Q. For a given firm, whenever the ratio of marginal product to input price differs across inputs, it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio. Assume initially this firm is at point A. The following would be a reason for a movement to point B. Wages go down and per unit capital cost go up. The long-run total cost of zero output is equal to; zero. With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is; a straight line. Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. If at the current level of production the marginal product of labor is 4 while the marginal product of capital is 2, then in order to minimize your costs of production you should use; more capital and less labor. Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. Suppose at the current level of production the firm is minimizing costs and the marginal product of labor is 10. Given this you know that the marginal product of capital must be; 2. Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output? $20. The minimum efficient scale of production is the level of production required for the; long run average curve to reach its minimum. The diagram shows the short-run average total cost curves for five different plant sizes of a firm. If in the long run the firm should produce output 0x, it should do it with a plant of size: #2. Refer to the data. In the long run the firm should use plant size “C” for: all units of output greater than or equal to 80. Refer to the data. At what level of output is minimum efficient scale realized? 50. If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that: economies of scale (increasing returns to scale) are being realized. Refer to the diagram. Minimum efficient scale: is achieved at Q₁. If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then: it is encountering economies of scale (increasing returns to scale). When a firm is experiencing diseconomies of scale (decreasing returns to scale); Its average total costs will decline if it reduces its scale of operations. Diseconomies of scale (decreasing returns to scale) start between: 40 and 50 units of output. Refer to the above graphs. They show the long-run average total cost (LRATC) for a product. Which graph would most probably be applicable to a natural monopoly? Graph A. Suppose MP_L = 20 and MP_K = 40 and the rental rate on capital is $10.  If the level of production is currently efficient the wage rate must be; $5. For a constant returns to scale production function; both average and marginal costs are constant. A firm whose production function displays increasing returns to scale will have a total cost curve that is; a curve with a positive and continually decreasing slope. Suppose the production function for coffee (C) is C = min(B,W) where B = beans in pounds and W = water in gallons and the price of water is $.10 per gallon and the price of beans is $10 per pound. The expansion path is; B = W. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean feed is $5, what is the cost minimizing combination of producing P = 200; S = 40. Sara has a conference planning business. She started it because it was the only job available and now her accountant tells her she made profit $30,000 last year. Then a local firm offered her a job for $40,000 which she would like equally well as her own business. How much economic profit is she making after the new offer. -$10,000

10.The demand curve facing a perfectly competitive firm is; infinitely elastic. Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should; continue to operate. In a decreasing cost industry, as output grows over time; prices will fall. If firms are price takers this implies that; the demand curve facing the firm is perfectly elastic. In a competitive industry, the industry’s short-run supply curve is; the horizontal sum of the marginal cost curves. In the long run, the typical firm in this market will produce a quantity equal to; q_3. I get $200 revenue from the sale of my product each day. I rent the factory that I use for $90 a day. The raw materials of the operation cost $115 a day. I do all the work myself. Both jobs are equally attractive as far as the work is concerned. Recently, a competitor offered me $30 a day to work for him. My accounting profit is ____, and my economic profit is _____;-5; -35. A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should; shutdown. Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 – 0.9Q. What is the industry supply curve? P = 50 + 0.1Q. Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 – 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q? 2. If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: will also be $5. A perfectly elastic demand curve implies that the firm: can sell as much output as it chooses at the existing price. Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices: between P₂ and P₃. Refer to the diagram for a purely competitive producer. If product price is P₃: economic profits will be zero. Refer to the diagram. At the profit-maximizing output, the firm will realize: an economic profit of ABGH. Refer to the diagram. The firm will shut down at any price less than: P₁. The lowest point on a purely competitive firm’s short-run supply curve corresponds to: the minimum point on its AVC curve. Refer to the diagram for a purely competitive producer. The firm’s short-run supply curve is; the bcd segment and above on the MC curve. Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect: New firms to enter causing the market price of soybeans to fall. Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect: Some firms to exit causing the market price of corn to rise. Which of the following is true of normal profits? They are necessary to keep a firm in the industry in the long run. If the representative firm in a purely competitive industry is in short-run equilibrium and at its current output level, its marginal cost exceeds its average total cost, then we can conclude that: Other firms will enter the industry in the long run. Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that as long run adjustments consequently occur, the firms in the industry will find that: Profits will decrease. Refer to the above graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price P of the product? S will decrease, P will increase. The long-run supply curve under pure competition is derived by observing what happens to market price and quantity when market: Demand changes, and all consequent long-run adjustments have occurred. The long-run supply curve would be upward-sloping if: Resource prices fall as industry production contracts. The long-run market supply curve would be downward-sloping if the representative firms: ATC curves shift down as the industry expands. What happens in a decreasing-cost industry when some firms leave and the industry’s output contracts? The average cost will increase. One explanation for the existence of an increasing-cost industry is: As the industry expands, prices are bid up for some factors of production. Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10, so that marginal cost is MC = 2q +1. If market demand is given by Q_D = 1050 – 50P, how much will the individual firm produce? 5. Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10, so that marginal cost is MC = 2q +1. If market demand is given by Q_D = 1050 – 50P, profit to the firm will be; 15. Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because; firms maximize profits and free entry implies that maximum profits will be zero.