Answer each of the following statements True/False/Uncertain. Give a full explan
ID: 1119542 • Letter: A
Question
Answer each of the following statements True/False/Uncertain. Give a full explanation of your answer including graphs where appropriate.
(When in doubt, always include a fully labeled graph.)
A) The only difference between short and long-run competitive equilibrium is that firms cannot adjust at least one input in the short-run (relative to the long-run).
B) If a supply curve is upward sloping, then it is representative of short-run (not long run) competitive supply.
C) If a firm was a price maker (ie. does not take the price as given), it would set price in the elastic portion of the demand curve.
D) Both ad-valorem and per-unit taxation result in the exact same equilibrium outcome, regardless of whether the tax is imposed on consumers or producers.
Explanation / Answer
A) The only difference between short and long-run competitive equilibrium is that firms cannot adjust at least one input in the short-run (relative to the long-run) - True. In long run all factors of production are variable. Also, competitive firms earn zero economic profit in long run.
B) If a supply curve is upward sloping, then it is representative of short-run (not long run) competitive supply. = True. The long run supply curve is perfectly inelastic at the full employent level in long run.
C) If a firm was a price maker (ie. does not take the price as given), it would set price in the elastic portion of the demand curve.= False. he will try to set price in inelastic portion so that change in price, doesn't change quantity demanded by the large amount and hence revenue increases.
D) Both ad-valorem and per-unit taxation result in the exact same equilibrium outcome, regardless of whether the tax is imposed on consumers or producers.= True. Both are on the number of units produced and hence have same incidence.