In the Long Run, If Firms in a Perfectly Competitive

question 195

Multiple Choice

In the long run, if firms in a perfectly competitive market are incurring economic losses, then

• A) new firms will enter the market and the price will rise.
• B) some firms will leave the market and the price will fall.
• C) some firms will leave the market and the price will rise.
• D) new firms will enter the market and the price will fall.

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Definitions:

Duration

An indicator of how the price of a bond or other debt security responds to interest rate fluctuations, typically represented in years.

Market Yield

Market yield refers to the current rate of return anticipated on a bond if held to maturity, factoring in both its price and interest payouts compared to the market's interest rates.

Interest-Rate Sensitivity

The degree to which the price of an investment, often a bond, responds to changes in interest rates.

Bond Prices

The market value of bonds, which inversely fluctuates with interest rates: when rates go up, bond prices fall, and vice versa.