When Price Is Less Than the Firms' Minimum Average Total

question 3

Multiple Choice

When price is less than the firms' minimum average total cost in a perfectly competitive market in the long run,________.

• A) new firms will enter the market
• B) existing firms will leave the market
• C) prices are likely to fall further
• D) firms' profits are likely to be their maximum

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Definitions:

Overvalued

Overvalued describes a situation where the market price of an asset is higher than its intrinsic value, often due to speculation or overestimation of its financial performance.

Par Value

A nominal value assigned to shares of stock by the issuing company, which has little relation to its market value.

Undervalued

A financial assessment that concludes an asset or a company's market price is lower than its intrinsic value.

Overvalued

Refers to a situation where the price of an asset exceeds its intrinsic value, often due to speculative demand.