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:

Price Inelastic

Refers to a situation where the demand for a product does not change much with a change in price.

Demand Curve Elastic

A characteristic of the demand curve where the quantity demanded by consumers changes significantly as a result of price changes.

Total Revenue

Total revenue is the total amount of money received by a firm from selling its goods or services before any expenses are deducted.

Price Elasticity

A measure of how sensitive the quantity demanded of a good is to a change in its price.