Exhibit 2 ​ Refer to Exhibit 2

question 4

Multiple Choice

Exhibit 2 ​ Refer to Exhibit 2. If free trade is allowed, consumer surplus is the

• A) Area A + B + C + D
• B) Area A
• C) Area A + B + D
• D) Area A + B + C
• E) Area A + B

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Definitions:

Purely Competitive

A market structure characterized by a large number of small firms producing similar products, with easy entry and exit from the market, leading to price-taking behavior.

New Firms

New firms refer to businesses that have been recently established and are in the early stages of their operational life.

Long-Run Equilibrium

A state in which all factors of production can be adjusted, allowing firms to enter or exit the market, resulting in a situation where economic profits are zero in a perfectly competitive market.

P = MR

An economic principle where the price (P) of a product equals its marginal revenue (MR), often applied in perfectly competitive markets.