Suppose a Competitive Market Is Comprised of Firms That Face

question 232

Multiple Choice

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i)
New firms will enter the market.
(ii)
In the short run, price will rise; in the long run, price will rise further.
(iii)
In the long run, all firms will be producing at their efficient scale.

• A)(i) and (ii) only
• B)(i) and (iii) only
• C)(ii) and (iii) only
• D)(i), (ii) and (iii)

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Definitions:

C Corporations

A type of corporation in the United States subject to corporate income tax, distinguished by being taxed separately from its owners.