Answer to Question #100865 in Microeconomics for Usman Tariq

Question

With the aid of diagrams, show the short-run and long-run equilibrium position of a firm in a perfectly competitive market?

When a firm doubles its inputs and finds that its output has more than doubled, this is
known as?

Assume that there are increasing returns to scale; when the production is increased, the long-run average cost is?

The demand for a product is said to be price elastic when?

For a price inelastic good, when the price increases, this means?

Answer 1

1) In the short-run the firm produces at MR = MC = P and either earns profits or face losses. In the long-run equilibrium position of a firm in a perfectly competitive market the firm produces at P = MR = MC = LATC and earns normal (zero) profit only.

2) When a firm doubles its inputs and finds that its output has more than doubled, this is known as economies of scale.

3) Assume that there are increasing returns to scale; when the production is increased, the long-run average cost is decreased.

4) The demand for a product is said to be price elastic when the change in price causes higher percentage decrease in quantity demanded.

5) For a price inelastic good, when the price increases, this means that the decrease in quantity demanded will be comparatively small, so the total revenue will increase too.