-The Above Figure Shows Three Possible Average Total Cost Curves

question 255

Multiple Choice

-The above figure shows three possible average total cost curves.If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC?,each produce 30 units,and the market price of the good is $16 per unit,then the firms

• A) make zero economic profit and firms neither enter nor exit the industry.
• B) make zero economic profit and so some firms exit the industry.
• C) incur an economic loss and so some firms exit the industry.
• D) incur an economic loss and so new firms enter the industry.
• E) make an economic profit and new firms enter the industry.

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Definitions:

Pareto Efficient

An allocation condition in resources where any attempt to favor one individual results in a disadvantage to another.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate without making at least one individual or preference criterion worse off.

Marginal Rate of Substitution (MRS)

The marginal rate of substitution is the rate at which a consumer is willing to substitute one good for another while keeping the utility level constant.

Cobb-Douglas Utility Functions

A mathematical representation of consumer preferences that shows how utility depends on the consumption of different goods, characterized by constant elasticity of substitution.