Competitive Markets

State whether True or False (with suitable explanations) for the following.

a)In the long run industry equilibrium (for a perfectly competitive industry) the marginal firm will produce an output greater than that which minimizes its average variable costs. (Total 6 marks; 4 marks for correct explanation).

b)An invention is discovered for a particular industry which reduces the quantity of all factors required to produce any given output by X per cent (this is known as Hicks technical progress). It is made available free of charge by the government to all firms who wish to use it. If the industry is competitive and all firms are identical, labour demand will rise if and only, if the price elasticity of output demand is greater than unity.

(Total 6 marks; 4 marks for correct explanation).