1. You are talking with a friend of yours about the economy and you try to explain them how the market works. Your friend replies to you: "Everything you are telling me is very nice, but this is not realistic at all. You are assuming that everybody knows everything, but at least I have no idea how a production function for coffee could look like and I still buy a coffee every day.". How do you reply?

2. At which point are you expecting companies to produce in the short run?

a) When Average costs equal marginal costs

b) When costs equal revenue

c) When price equals marginal revenue

d) When marginal revenue equals marginal cost

3. Which of the following is not an assumption we are relying on to analyze a competitive market?

a) Free Entrance and Exit

b) Decreasing Costs when production increases

c) A large number of sellers and buyers meet on the market

d) Products are perceived as homogenous

4. The individual company's decision on how much they are producing will influence the price they can receive from buyers?

True

False

5. In the long run, companies will make zero economic profit but might have some accounting profit.

True

False

6. Please briefly explain the mechanism that leads to the answer you have given in the question above

7. In which regard does the long-term optimization differ from the short-run?

a) Firms can enter and exit the market

b) Firms are able to decide on their inputs more flexibly

c) Companies can change the production technology

d) None of the above

e) All of the above

8.What happens to total supply when we observe constant cost industries and a positive shock in demand? Briefly discuss both the short-run and long-run results.