The Accompanying Graph Shows the Long-Run Supply and Demand Curves

question 211

Multiple Choice

The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal

• A)cost equals marginal benefit at P₁ Q₁.
• B)benefit exceeds marginal cost at the output level of Q₂.
• C)cost exceeds marginal benefit at the output level of Q₂.
• D)benefit equals marginal cost at all points on the supply curve.

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Definitions:

Price Elasticity of Demand

A measure of the sensitivity of quantity demanded to a change in price, indicating how much the quantity demanded of a good will change when its price changes.

Market Power

The ability of a company or group of companies to manipulate or control prices and total market output.

Oligopolistic

Pertaining to a market structure characterized by a small number of firms whose actions and policies can significantly impact the entire market.

Perfect Competition

A market structure characterized by many buyers and sellers, homogeneous products, free entry and exit, and full information.