Suppose a Perfectly Competitive fiRm Is Making Supernormal Profits

question 15

Multiple Choice

Suppose a perfectly competitive firm is making supernormal profits. What is likely to happen in the long run?

• A) The firm will have to shut down production.
• B) The firm can increase its supernormal profits if it increases its output.
• C) The firm will continue to make supernormal profits.
• D) New entrants will compete away the firm's supernormal profits.

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Definitions:

Principles-based Approach

A method of regulation that emphasizes the spirit of the laws and principles behind them, rather than rigid adherence to specific rules.

Lease Capitalization

The process of recording a lease as an asset and a corresponding liability on the lessee's balance sheet, particularly for long-term leases.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is used globally to prepare public company financial statements.

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, principles, and procedures.