-The Above Figure Shows Three Possible Average Total Cost Curves

question 271

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 ATC₂, each produces 40 units, and the market price of the good is $20 per unit, then

• A)the firms incur an economic loss of $12 per unit.
• B)firms will enter the industry and the number of firms increases.
• C)the firms' ATC curves will eventually shift to become the same as ATC₁.
• D)firms will exit the industry and the number of firms decreases.
• E)Both answer A and answer D are correct.

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Definitions:

Swaps

Financial agreements to exchange or "swap" cash flows or other financial instruments between two parties, typically involving interest rates, currencies, or commodities.

Index Futures

Financial contracts to buy or sell a financial index at a predetermined future date and price.

Short Position

An investment strategy where an investor sells a security that he does not own at the time of sale, typically borrowing it, and hopes to buy it back later at a lower price.

Counterparties

The other organization or party involved in a financial transaction or agreement.