A Perfectly Competitive Market Is in Long-Run Equilibrium

question 90

Multiple Choice

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

• A)In the short run, the typical firm increases its output and makes an above normal profit.
• B)In the short run, the typical firm's output remains the same but because of the higher price, its profit increases.
• C)In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit.
• D)In the short run, the typical firm increases its output, but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Understand the rules of debit and credit in relation to account balances.

Recognize the normal balance (debit or credit) for various account types.

Understand the composition and purpose of the chart of accounts.

Interpret the implications of transactions on account balances.

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Definitions:

Circular-flow Model

An economic model illustrating the movement of resources and money between producers and consumers within an economy, showcasing the interconnectedness of businesses, households, and the government.

Entrepreneurial Ability

The skills and qualities that enable an individual to conceive, launch, and manage a new business venture successfully.

Physical Capital

The stock of tangible, man-made objects that contribute to production processes, such as machinery, buildings, and tools.

Bulldozers

Heavy machinery equipment used for moving, digging, and clearing large pieces of land.