Suppose the Minimum Possible Price of Constructing Homes Is $50

question 62

Multiple Choice

Suppose the minimum possible price of constructing homes is $50 per square foot. As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will:

• A) exit the industry, and the price will fall below $40 in the long run.
• B) exit the industry, and the price will rise above $40 in the long run.
• C) exit the industry, and the price will remain at $40 in the long run.
• D) enter the industry as the price rises above $40 in the long run.

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Definitions:

Carrying Value

Also known as the book value, it is the value of an asset as reported on the balance sheet, calculated as the original cost minus accumulated depreciation, depletion, or amortization.

Journal Entry

A record of the financial transactions and their effect on specific accounts in the accounting system.

Retirement

The period in life when an individual stops working on a full-time basis, often accompanied by income from savings, investments, or pension.

Callable Bonds

Financial securities that allow the issuer the right to redeem the bonds before their maturity date at a specified price.