Suppose One Firm in a Perfectly Competitive Industry Experiences an Increase

question 104

Multiple Choice

Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production. Which of the following best describes the most likely long run adjustment to this situation?

• A)Eventually, all firms in the industry will also experience this same increase in costs.
• B)Eventually, the price of the product will increase, and consumers will pay for the increase in costs.
• C)The firm in question may suffer losses and exit the industry.
• D)Eventually, all firms in the industry will experience a decrease in costs.

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Definitions:

Zero-Coupon Bonds

Bonds that do not pay interest during their lifetime but are issued at a discount to their face value, thus generating profit at maturity.

Yield

The income return on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost or current market value.

Minimum Number

The lowest quantity or amount that is allowed, required, or desired.

Coupon Rate

The percentage rate of interest a bond yields annually, based on its nominal value.