econ 10-14

Suppose that the pen-making industry is perfectly competitive. Also suppose that all current firms and any potential firms that might enter the industry have identical cost curves, with minimum ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?

$1.25

Would the following terms of trade be acceptable to both nations? 1 can baby formula ≡ 2 cans tuna fish: ii. 1 can baby formula ≡ 3.5 cans tuna fish: iii. 1 can baby formula ≡ 6 cans tuna fish:

1. No 2. yes 3. no

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 3 cans tuna fish Tunata: 1 can baby formula ≡ 5 cans tuna fish a. In what product should each nation specialize?

Canswicki should produce baby formula , and Tunata should produce tuna fish .

Which of the following best describes the efficiency of monopolistically competitive firms?

Neither allocatively efficient nor productively efficient

. Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, Big Country needs to give up b. Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. The limits of the terms of trade between these two countries will be

a. 3/4 of a unit of Y for 1 unit of X and should produce good X. Small Nation needs to give up 1 unit of X for 1 unit of Y and should produce good Y. b. between 1 unit of good X for a unit of good Y and 4/3 units of good X for a unit of good Y.

There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $18 for every $300 invested. Instructions: Enter your answers as a whole number. a. What is the percentage rate of return for these 298 dairies? b. b. The other two dairies have a cost structure that generates profits of $26 for every $200 invested. What is their percentage rate of return? c. Assuming that the normal rate of profit in the economy is 9 percent, and that firms cannot copy each other's technology, will there be entry or exit? d. Will the change in the number of firms affect the two that earn $26 for every $200 invested? e What will be the rate of return earned by most firms in the industry in long-run equilibrium? f . If firms can copy each other's technology, what will be the rate of return eventually earned by all firms?

a. 6% b 13% c exit d Yes, because those two firms can claim a larger market share. e 9% f 9%

The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price:

may be so low that the regulated monopoly can't break even.

Facepalm, Instarant, and Snaphat are rival firms in an oligopoly industry. If kinked-demand theory applies to these three firms, Facepalm's demand curve will be:

more elastic above the current price than below it.

How often do perfectly competitive firms engage in price discrimination?

never