Suppose a Profit-Maximizing Firm in a Competitive Market Produces Rubber

question 18

Multiple Choice

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

• A)experience losses but will continue to produce rubber bands.
• B)shut down.
• C)earn both economic and accounting profits.
• D)raise the price of its product.

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Definitions:

Complementary Relationship

A situation where two goods or services are used together, and the increase in consumption of one leads to an increase in consumption of the other.

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Truck drivers who are born within the country they are working, as opposed to those who have immigrated.

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The reverse movement of water, mixtures, or substances into the distribution pipes of the potable supply of water from any source or sources.