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Short Run and Total Cost

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1.In the model of monopolistic competition, there can be short-run

a. losses or profits but there must be profits in long-run equilibrium.
b. profits but there must be losses in long-run equilibrium.
c. losses or profits but there must be losses in long-run equilibrium.
d. losses or profits but there must be neither profits nor losses in long-run equilibrium.
e. losses but there must be profits in long-run equilibrium.

2.If the perfectly competitive market demand for gym shoes is given by QD = 100 - P and the market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be

a. P = 50 and Q = 50.
b. P = 40 and Q = 90.
c. P = 40 and Q = 60.
d. P = 30 and Q = 70.
e. P = 25 and Q = 75.

3.Total surplus in a market is a measure of

a. social welfare created by the market.
b. profits that accrue to the owners of firms in a particular market.
c. the rebates that consumers receive when they purchase certain goods or services.
d. excess inventory that remains at the end of a season.
e. planned inventory that a firm carries from one year to the next.

4.A representative firm with long-run total cost given by TC = 2,000 + 20q + 5q2 operates in a competitive industry where the market demand is given by QD = 10,000 - 40P. The long-run equilibrium industry output will be

a. 1,200 units.
b. 1,800 units.
c. 2,200 units.
d. 2,600 units.
e. 3,200 units.

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Solution Preview

1. (D). In the long run, the equilibrium point is 0 economic profits.

2. (D) is the correct answer
100-P = 10+2P
=> 90 = 3P
=> P = ...

Solution Summary

The solution is detailed and explains the concepts very well. The solution is very easy to understand as well. All the steps are clearly shown which makes it very easy for anyone to follow. Overall, an excellent response to the question being asked.

See Also This Related BrainMass Solution

Short and Long Run Equilibrium Price and Output Level

The Amber Corporation total cost function (where TC is the total cost in dollars and Q is quantity) is
TC = 200 + 4Q + 2Q^2

a. If this firm is perfectly competitive and the price of its product is $24, at what quantity will the firm choose to produce?
b. Does the answer represent a short-run equilibrium or a long-run equilibrium? Explain.
c. If the answer is for short-run equilibrium, calculate the long-run price and quantity for this firm.

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