Refer to the Graphs Shown, Which Depict a Perfectly Competitive

question 78

Multiple Choice

Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand decreases from D₀ to D₁:

• A)market price falls from P₀ to P₁ and the firm's output rises from q₀ to q₁.
• B)market price falls from P₀ to P₁ and the firm's output falls from q₁ to q₀.
• C)market price remains at P₀ because perfectly competitive firms can't earn positive economic profit.
• D)the firm's output remains at q₁ because perfectly competitive firms can't earn positive economic profit.

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Definitions:

Tax Rate

The percentage at which an individual or corporation is taxed, varying based on income level, type of good, or service, among other factors.

Leverage

The use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment.

Stock Price

The cost of purchasing a single share of a company, which fluctuates based on market conditions and investor perceptions.

EBIT

Earnings Before Interest and Taxes represents a company's profit, encompassing all revenues and costs apart from interest and taxes.