There Are 1,000 Identical Firms in a Price-Taker Industry

question 124

Multiple Choice

There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?

• A) Nothing, because each firm is already maximizing its profits.
• B) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs).
• C) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease.
• D) Firms will exit the market, and the product price will rise.

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Definitions:

Standard Deviation

The positive square root of the variance.

Advertising

The action of calling public attention to products, services, needs, etc., especially by paid announcements in print, broadcast, or electronic media.

Sales

The activity or business of selling products or services.

Equation

A mathematical statement that asserts the equality of two expressions, typically involving variables and constants.