Suppose a Competitive Market Is Comprised of Firms That Face

question 232

Multiple Choice

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i)
New firms will enter the market.
(ii)
In the short run, price will rise; in the long run, price will rise further.
(iii)
In the long run, all firms will be producing at their efficient scale.

• A)(i) and (ii) only
• B)(i) and (iii) only
• C)(ii) and (iii) only
• D)(i), (ii) and (iii)

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Definitions:

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Pricing strategy that involves setting the price of products or services at a very low level to attract customers.

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