Microeconomics Assignment with Answers and Analysis

Running head: MICROECONOMICS ASSIGNMENT
Microeconomic Assignment
Name of the Student
Name of the University
Author Note

1MICROECONOMICS ASSIGNMENT
Answer to Question 3
(A)
Firm A
AR= undefined, 10, 10, 10, 10, 10, 10
MR= 10, 10, 10, 10, 10, 10
MC= 12, 8, 10, 16, 24, 40
AC= undefined, 42, 25, 20, 19, 20, 26.6
Firm B
AC= INFINITE, 134, 77, 59, 54, 53.2, 61
MC= 34, 20, 23, 39, 50, 100
MR= 130, 110, 90, 70, 50, 30, 20
(B)
Firm A= operating in short-run
Firm B= operating in short-run
(C)
Firm A= perfect competition
Firm B= imperfect competition
(D)
Firm A= output level is 3

2MICROECONOMICS ASSIGNMENT
Firm B= output level is 5
(E)
Firm A= The minimum of average cost curve (19,4) is above the profit maximisation point
(50,3). Thus, the firm will incur losses.
Firm B= The firm is also making supernormal profits in the short run.

3MICROECONOMICS ASSIGNMENT
Answer to Question 6
(A)
(Rubinfeld and Pindyck 2013)
Suppose for some exogenous reason, the demand curve increases from D1 to D2. This
will increase prices from P1 to P2. As prices increases, the profits incurring to the firms also
increases. This will lead to the entry of new firms. As there exists constant cost structure, the
cost curves will not shift. The entry of the new firms will lead to increase in supply from S1
to S2. This entry will occur until there in zero profits in the industry. Therefore, Prices
remains same and the industry output increases to Q2. The long run curve is fully elastic in
nature.
(B)
The case of increasing cost is quite different from the constant cost industry. Suppose
because of some external factor the demand in the market increases from D1 to D2. Because
of this, prices increases from P1 to P2. Thus, existing firm now enjoys supernormal profit.
This will lead to entry of new firms in the industry. Because of the increasing cost structure