Answer to Question #270717 in Microeconomics for Ilustra

Question

1. TRUE or FALSE . All credits will be assigned to explanations.

a) For a normal good, the marginal revenue curve always lies below the demand curve.

b) In a two good model, if one good is an inferior good, then the other good must be a luxury good.

c) Montreal will have (hopefully) a very mild winter. Suppose the supply of down coats does not change. In the market equilibrium this winter, the quantity of down coats sold will go down because demand decreases.

d) Two firms employ the same factors of production to produce the same product. We also know that both of their technologies exhibit constant returns to scale. Then. if the factors firm 1 uses are exactly twice the amount of those firm 2 uses. then firm 1 must produce twice the output that firm 2 produces.

Answer 1

Question One

a. TRUE. Because marginal revenue values are lower than commodity prices, the marginal revenue curve for a normal good will always be lower than the demand curve.

b. TRUE. This is because demand for low-cost goods is high with low income, while demand for high-cost goods is high with high income, and vice versa.

c. FALSE. Because of the seasonal change, demand for down coats will increase, and thus the quantity sold will increase. For example, demand for down coats will increase during the winter season.

d. TRUE. When the same factors of production are combined in multiple enterprises with the same technology, the output will be the same. If a company doubles its production factors, its output will double.