Question

Identical firms like this Price Price MC 40 60 Qunnity 80,000 120,000 180,000 The next four questions are based on Figure 17. Given initial supply S and demand D, industry equilibrium in Figare 2 A. is at point G, with 160,000 units sold and 4,000 firms in the industry E, with 80,000 units sold and 4,000 firms in the industry. C. F, with 120,000 units sold and 2,000 firms in the industry D. F, with 120,000 units sold and 3,000 firms in the industry E. B. E, with 80,000 units sold and 2,000 firms in the indastry 18. If industry demand in Figure 2 shifts from D to D A. 18. If industry demand in Figure 2 shifts from D to Di, industry equilibrium shifts in the poet F, with price rising to P, and 4,000 firms in the industry point F, with price rising to Pt, and 3,000 firms in the industry C. point F, with price rising to Pt, and 2,000 firms in the industry E point G, with price remaining constant at P, and 2000 firmis in the industry 19. If the indastry demand in Figure 2 shifts from D to Di, then at the new short-run equilibriam, ead B. G, with price remaining constant at P, and 4,000 firms in the industry D to Di, then at the new short-rum equilibrium, each firm will realize: A. ล.profit ofPZRP. B. aprofit ofPZNQ. C. :loss ofPZRP D. a profit of ONRP.E zero economic profits 20. Suppose demand in Figure 2 has shifted from D to Di, and the industry has moved to the new sh run, there can now be a further move in equilibrium from ert-run equilibrism. In the long to E, with the number of frms in the indistry remaining constant at 2,000 F to G, with the number of firms in the industry increasing to 3,000. Fto G, with the number of firms in the industry remaining constant F to G, with the number of firms in the industry increasing to 4,000. B. C. D. E. F back to E, with the number of firms in the industry increasing to 4,000 21. Ifa purely competitive industry is in loog-run equiltibrium and property taxes increase, which of the fol A. Price will fall and output will fall is in long-run equilibeiam and property tases increase, which of the following will happen in the short run? C. Price and output will not change E. Price will fall and output will increase B. Price will rise and output will decrease.D. Price will rise and output will increase 22. Ifa purely competitive industry is in long-run equilibrium and property taxes increase, which of the following will h A. Price will rise and output will decrease.C. Price will rise and output will increase E. Price will fall and loag run? appen in the B. Price will fall and outpat will fall D. Price and output will not change output will increase 23. If a purely competitive industry is in long-run equilibrium and the price of a variable input increases, w hich of the following wil happen in the short run? A. Price and output will not change. B. Price will fall and output will fal C. Price will rise and output will increase D. Price will fall and output will increase E. Price will rise and output will decresse 24. Ifa purely competitive indastry is in long-run equilibrium and the price of a variable input increases, which of the fo happen in the long run A. Price will fall and output will increase C. Price will rise and output will increaseE. Price will rise B. Price and output will not change. and output will decrease D. Price will fall and output will fall Questions 25-31 are on the next page

Answer 1

(17) (E)

Equilibrium is at point E, where D & S curves intersect. Industry output is 80,000 and firm output is 40, so there are (80,000/40) = 2,000 firms.

(18) (C)

Equilibrium is at point F, where D1 & S curves intersect with higher price P1. Industry output is 120,000 and firm output is 60, so there are (120,000/60) = 2,000 firms.

(19) (B)

New Equilibrium is at point F, where D1 & S curves intersect with higher price P1. Corresponding profit [= Output x (Price - ATC)] is area P1ZNQ.

(20) (D)

In long run, equilibrium is at point G where D1 intersects the new, right-shifted supply curve (with original price) with industry output of 160,000 and firm output 40, so number of firms is (160,000/40) = 4,000.

NOTE: As per Answering Policy, 1st 4 questions are answered.