Suppose a Firm in a Competitive Market Increases Its Output

question 95

Multiple Choice

Suppose a firm in a competitive market increases its output by 25 percent. As a result, the price of its output is likely to

• A)decline by 25 percent.
• B)remain unchanged.
• C)increase by less than 25 percent.
• D)decline by more than 25 percent.

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Definitions:

Call Option

An agreement in finance that allows the owner the option, but not the requirement, to purchase a stock, bond, commodity, or different asset at a determined price during a defined timeframe.

Writer

In the context of options, the seller of an option contract who is obligated to meet the terms of the contract if the option is exercised.

Strike Price

The price at which the holder of an option contract can buy (call option) or sell (put option) the underlying asset.

Strike Price

The fixed price that allows the possessor of an option to either acquire (with a call option) or dispose of (with a put option) the base asset.