A Price-Taker Market Tends Toward a State of Long-Run Equilibrium

question 52

Multiple Choice

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

• A) firms will keep their prices low under fear of government regulation.
• B) with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs.
• C) by definition, production costs always rise to equal the market price.
• D) mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost.

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Definitions:

Traffic Jam

A condition on roadways where vehicles are halted or slowed for reasons such as increased vehicles volume or road construction, leading to congestion.

Odds

The ratio of the probability of an event happening to the probability of it not happening, often used in gambling and statistics.

Probability

A numerical representation, ranging from 0 to 1, indicating the probability of an event's occurrence.

Explanatory Variable

An explanatory variable is a type of independent variable that is used to explain variations in the dependent variable.