Use the Figure Below to Answer the Following Questions

question 115

Multiple Choice

Use the figure below to answer the following questions.

Figure 14.2.3
-Refer to Figure 14.2.3. Assume this firm faces demand curve D₁. If this firm in monopolistic competition is maximizing profit,

• A)there will be entry of rival firms into the industry.
• B)rival firms will exit the industry.
• C)the market is efficient.
• D)this firm will exit the industry in the long run.
• E)its profit will rise over time.

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Definitions:

Variable Expenses

Costs that vary in direct proportion to changes in the level of activity or volume of production.

Fixed Expenses

Obligations that remain constant in total regardless of changes in business activity levels, such as lease payments and salaries.

Cost Formula Equation

An equation that determines the total cost based on fixed costs, variable rate per unit of activity, and the level of activity.

High-low Method

A technique used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.