Perfectly competitive industry

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1. In a perfectly competitive industry, the market price is $25. A firm is currently producing $10,000 Units of output, its average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false:

a. The firm is currently production at the minimum average variable cost.

b. The firm should produce more output to maximize its profit.

c. Average total cost will be less than $28 at the level of output that maximizes the firm’s profit.

2. The demand curve is given by QD = 500 – PX + 0.5 I +10 PY - 2 PZ Where QD= quantity demand of good X PX= price of good X I= consumer income, in thousands PY= price of good Y PZ= price of good Z

A) Base on the demand curve above is X normal or an inferior good?

B) Base on the demand curve above, what is the relation between good X and good Y?

C) Base on the demand curve above, what is the relation between goo X and good Z?

D) What is the equation of demand curve if consumer income are $30000, the price of good Y is $10, and the price of good z is $20?

E) Graph the demand curve that you found in (D). Showing intercept and slope.

F) If the price good X is $15, what is the quantity demand? Show this point on your demand curve. G) Now the price of good Y rises to $15. Graph the new demand curve.

Reference no: EM131393669

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