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1) If the marginal cost equals the marginal revenue at a price higher than the average total cost at the profit-maximizing output, what will happen to a perfectly competitive market? Other firms will enter the market, and the price will lower until profits are eliminated
1) If the marginal cost equals the marginal revenue at a price higher than the average total cost at the profit-maximizing output, what will happen to a perfectly competitive market?
Other firms will enter the market, and the price will lower until profits are eliminated.
Some firms will leave the market, driving costs up until profits are eliminated.
Decreasing competition will drive marginal costs up until they equal average total costs.
Consumer demand will decrease and lower the price until profits are eliminated.
Individual firms in the market will increase output to enjoy increasing profits.
2) Imposing an import quota has which of the following effects?
Raises tax revenue; lowers domestic consumption; increases domestic production
Increases domestic consumption; increases domestic production
Increases domestic supply; decreases domestic demand
Decreases domestic supply; increases domestic quantity demanded
Increases domestic quantity supplied; decreases domestic consumption
Expert Solution
Answer:
1) Individual firms in the market will increase output to enjoy increasing profits.
2) Increases domestic consumption; increases domestic production
Step-by-step explanation
1) If the marginal cost equals the marginal revenue at a price higher than the average total cost at the profit-maximizing output, emphasizing that the price was being set higher the the cost, it means that the firms are gaining profit. Hence, other firms in a competitive market will be encouraged to produce more and enjoy the profits they will be gaining.
2) Due to imposition of import quota, imported goods will be limited. With that being said, consumers will tend to consume more local goods and producers has to supply more and therefore, increases domestic consumption and increases domestic production.
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