If Markets Are Perfectly Competitive and Production of a Good

question 76

Multiple Choice

If markets are perfectly competitive and production of a good results in water pollution, the imposition of a tax on the good will:

• A) reduce the number of firms producing that good in the long run.
• B) increase the number of firms producing that good in the long run.
• C) reduce the number of firms producing that good in the short run.
• D) increase the number of firms producing that good in the short run.

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Definitions:

Isocost Line

A graph line representing all combinations of inputs that have the same total cost for a firm.

Total Cost

The sum of all costs incurred by a firm in the production of goods or services, including both fixed and variable costs.

Isocost Line

A diagram representing every possible mix of inputs that can be acquired for a specific total expenditure.

Cost Of Capital

The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.