Suppose a Perfectly Competitive Industry Is in Long-Run Equilibrium

question 132

Multiple Choice

Suppose a perfectly competitive industry is in long-run equilibrium.A new one-time cost-saving technology (which is freely available) is then developed and new plants are built.Eventually,a new long-run equilibrium will be established where

• A)new plants employ the new technology,but existing plants continue to produce as long as they cover their fixed costs.
• B)high-cost and low-cost firms exist side by side and market output will be higher.
• C)the industry supply curve has shifted to the left and price and output are both higher.
• D)all plants continue to operate until they are physically worn out as long as price is greater than the firm's average variable cost.
• E)all plants use the new technology,and market output will be higher and price will be lower.

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Definitions:

Forward Rates

Interest rates or exchange rates fixed now for financial transactions that will occur at a future date.

Home Currency Approach

A method of assessing an international investment by converting all foreign currencies involved into the investor’s domestic or "home" currency.

Spot Rate

The ongoing market rate at which a certain currency is available for buying or selling for immediate dispatch.

Unbiased Forward Rate

Theoretically, a forward rate in the currencies market that is equal to the spot rate adjusted for interest rate differentials, without any prediction of future direction.