When Firms Have an Incentive to Exit a Competitive Price-Taker

question 154

Multiple Choice

When firms have an incentive to exit a competitive price-taker market, their exit will

• A) lower market price.
• B) necessarily raise the costs of firms that remain in the market.
• C) raise profits for firms that remain in the market.
• D) reduce demand for the product.

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Definitions:

Differential Revenue

The difference in revenue expected from two different decisions or alternatives.

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services and are an integral part of the finished product.

Variable Factory Overhead

Variable factory overhead consists of production costs that vary with the level of output, such as utilities and indirect materials.

Fixed Costs

Costs that tend to remain the same in amount, regardless of variations in the level of activity.