The Following Figure Represents the Cost Curves of Two Firms

question 125

Multiple Choice

The following figure represents the cost curves of two firms operating in different perfectly competitive industries. This economy consists only of industries 1 and 2.

-Refer to the figure above.If the market price in industry 1 is $7 and the market price in industry 2 is $3,we should expect ________ in the long run.

• A) firm A to exit industry 1 and enter industry 2
• B) both fims to stay in their respective industries
• C) firm B to exit industry 2 and not enter industry 1
• D) firm B to exit industry 2 and enter industry 1

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Definitions:

Markup Pricing

A pricing strategy where a fixed percentage is added to the cost of a product to determine its selling price.

Target-Return Pricing

Involves setting the price of a product based on the expected return on investment (ROI), aiming to meet a predefined profit goal.

Markup

Markup refers to the difference between the cost of a good or service and its selling price, expressed as a percentage of the cost.

Selling Price

The amount of money for which a product or service is sold to customers.