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Two students are preparing for their micro exam, but they seem confused: Student A: ‘‘we learned
that demand curves always slope downward. In the case of a competitive firm, this downward sloping
demand curve is also the firm’s marginal revenue curve. So that is why marginal revenue is equal to
price.’’ Student B: ‘‘I think you have it wrong. The demand curve facing a competitive firm is
horizontal. The marginal revenue curve is also horizontal, but it lies below the demand curve. So
marginal revenue is less than price.’’ Can you clear up this drivel? Explain why neither student is
likely to warrant a grade commensurate with his or her name.
Scenario 1 for questions 11 and 12A monopolist faces the following demand curve, marginal revenue curve and total cost curve for its product:Q = 400 -2PMR = 200 -QTC = 10Q11.Refer to scenario 1. How much profit does the monopolist earn?
One might expect firms in a monopolistically competitive market to experience greater swings in the price of their products over the business cycle than those in an oligopoly market. However, fluctuations in profits do not necessarily follow the same pattern
what would we expect to happen to the market when the government imposes a price floor below equilibrium?
- Draw a Market supply curve for Coffee beans. What happens to it in each of the following scenarios? Why?
- Technology which allows cheaper and quicker processing of coffee beans
- The price of tea leaves increase
- Subsidy given to coffee producers have are reduced
- The no. of producers increases in the coffee beans market
- Government increases the minimum wages of labour workers
- Price of Coffee beans increase
- Poor natural conditions for coffee production
- Draw a demand curve for Wai Wai noodles. What happens to it in each of the following scenarios? Why?
- The price of 2pm noodles increases
- The income of a consumer who treats Wai Wai as an inferior good increases
- The taste of majority of consumers shifts away from Wai Wai to Ramen noodles
- The price of wai wai increases
- Famous Newspaper publishes an article on harmful effects of instant noodles
When there is a technological advancement in the cellphone industry, consumer surplus in that market will
Mr Hart sold his house. The asking price was R720 000, and he decided that he would take no less than R700 000. After some negotiation, he sold the house for R705 000. His producer surplus is
Suppose Lauren, Leslie and Lydia all purchase tablets for R1 500 each. Lauren's willingness to pay was R3 500, Leslie's willingness to pay was R2 500 and Lydia's willingness to pay was R2 000. Total consumer surplus for these three would be
Betty decides that she would pay as much as R9 000 for a new iPhone. She buys the iPhone and realises negative consumer surplus of R1 500. How much did she pay for the iPhone?
