What Will Happen in a Perfectly Competitive Market If There

question 37

Multiple Choice

What will happen in a perfectly competitive market if there is an increase in the cost of labour, ceteris paribus?

• A) Firms will now make supernormal profits that will attract new entrants to the market.
• B) The short-run average total cost curve will shift upward reducing firms' profits.
• C) The supply curve will shift to the right reducing prices in the market further.
• D) The average revenue curve will shift upward by the extent of the increase in labour costs.

---

Definitions:

Operating Cash Flows

Cash generated from a company’s normal business operations, indicating the company's ability to generate sufficient positive cash flow to maintain and grow its operations.

Financing Costs

Financing Costs encompass expenses associated with raising capital to finance a company's operations or to fund expansion, including interest payments on debt and costs related to issuing equity.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reflected as a line item in the income statement.

WACC

WACC, or Weighted Average Cost of Capital, represents a firm's cost of capital in which each category of capital is proportionately weighted.