When the Conditions in a Competitive Price-Taker Market Are Such

question 66

Multiple Choice

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

• A) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
• B) all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs.
• C) some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return.
• D) resource prices will increase, competition will decline, and eventually the firms in the industry will earn monopoly profit.

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Definitions:

Extraction Costs

Costs related to extracting natural resources from the ground, like mining or drilling activities.

Quantity Extracted

The amount of a resource or good that is removed from its natural setting or produced over a given period.

Shift from TC₁ to TC₀

Represents a change in total cost from one state (TC₁) to another (TC₀), often used in economic models to explain cost variations.

User Cost

The cost of using a capital asset, considering both the depreciation of the asset and the opportunity cost of not investing the funds elsewhere.