What if Questions

8 important questions on What if Questions

Q: Price is below AC but above AVC—operate or shut down?

A: Operate in the short run; you cover VC and some FC.

Q: Price is below AVC—operate or shut down?

A: Shut down; you’d lose less by producing nothing.

Q: Demand shifts right in perfect competition. Short run vs long run?

A: Short run: price and profits rise. Long run: entry pushes price back to min AC and profits to zero.
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Q: Monopolist faces a more elastic demand (same costs). What happens to price and markup?

A: Markup falls; optimal price moves closer to MC.

Q: In Cournot, your rival cuts output. What’s your best response?

A: Increase your output—residual demand left for you is larger.

Q: In Stackelberg, what’s the leader’s advantage in plain terms?

A: Commitment: it grabs market share first, forcing the follower to accommodate.

Q: Why might oligopoly prices be sticky even if costs change a bit?

A: Firms fear asymmetric rival reactions: losing share on price hikes and not gaining much on cuts.

Q: One sentence linking isoquants and isocosts.

A: Pick the cheapest input mix that hits your desired isoquant—where the isoquant just kisses (is tangent to) the isocost.

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