Microeconomics Assignment: Question Answers with Explanations

This document presents solutions to a microeconomics assignment, addressing key concepts such as cost analysis, market structures (including perfect competition and monopoly), demand and supply dynamics, and revenue calculations. Each question includes the correct answer, along with explanations for why the correct answer is accurate and why incorrect options are not. The assignment covers topics like the impact of new technologies on costs, the strategic decisions firms make regarding production scales, the relationship between price and average variable cost, profit maximization, and the effects of changes in market demand. Furthermore, the assignment explores the concepts of marginal and average revenue, consumer surplus, and opportunity cost, offering a comprehensive review of core microeconomic principles. This resource is designed to enhance understanding and provide a clear framework for tackling similar problems.

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Question 19
The correct answer is B
The incorrect option is A
It is incorrect since introduction of new technology would potentially lower the variable cost while
increasing the fixed cost. Thus, we cannot conclude that ATC would be shifted above.
The change in the question can be in which of the cases would the ATC curve shift indeterminate?
Question 20
The correct answer is C
The incorrect option is B
This is incorrect since it would be a preferred option when the company wants to decrease the scale
of production.
B would be correct if the company intends to decrease the scale instead of increasing it.
Question 21
The correct answer is B
The incorrect option is E
It is incorrect since if the production continues at the current level, the losses would keep on
increasing with every incremental unit produced.
E would be the answer is the question was “If price is equal to the minimum average variable cost
and the firm is operating efficiently, the best a firm can do is”
Question 22
The correct answer is D
The incorrect option is A
The option is incorrect since the lowest point of ATC is greater than the MR (which is horizontal). As
a result even at maximum efficiency, the firm would incur a loss of $ 2 per unit.
A would be the answer if in the question MR is increased from $ 10 to $ 12. Then there would be
break even.

Question 23
The correct answer is E
The incorrect option is B
The option is incorrect since when the demand increases in the short run, the supply remains
unchanged. As a result, there is shifting of demand curve leading to increase in price. Thus, this is
true but the question wants false statement.
B would be the correct answer if the demand for maple syrup decreases in the short run instead of
increasing.
Question 24
The correct answer is C
The incorrect option is D
This is incorrect since the marginal revenue tends to decrease at a faster rate in comparison with
average revenue and hence is lower compared to AR.
D would have been correct if the question changed monopoly to perfect competition since in that
market MR=AR.
Question 25
The correct answer is D
The incorrect option is A
This is incorrect because in any monopoly, the objective is never to maximise the consumer surplus.
A would be correct choice if instead of monopolist, there would have been a firm in perfect
competition.
Question 26
The correct answer is E
The incorrect option is C
This is incorrect since John can indulge in one of the two activities and hence one of the activities
which is preferred would be opportunity cost.

C would be the correct choice if John has two choices i.e. read book or play basketball & watch TV.