A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium

question 87

Multiple Choice

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

• A)earn positive economic profit, rise even higher
• B)earn positive economic profit; be back at zero
• C)produce more output; be less than zero
• D)produce less output; rise
• E)earn positive economic profit; turn into losses

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Definitions:

Interest Rate Risk

The risk that the value of an investment will decrease due to a change in interest rates.

High Coupon Bond

A bond that offers a relatively high interest rate (or coupon rate) compared to the current prevailing rates of other similar bonds.

Interest Rate Sensitivity

A measure of how much the price of an investment, particularly bonds, changes in response to changes in interest rates.

Low Coupon Bond

A bond that pays interest at a lower rate than the market rate, typically resulting in its selling at a discount to face value.