When Firms in a Price-Taker Market Are Temporarily Able to Charge

question 112

Multiple Choice

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

• A) the firms will earn long-run economic profit.
• B) additional firms will be attracted into the market until price falls to the level of per-unit production cost.
• C) the firms will earn short-run economic profits that will be offset by long-run economic losses.
• D) the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.

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Definitions:

Revolving-Credit Agreement

A financial agreement permitting a business or person to lend, pay back, and re-lend funds up to an approved borrowing limit.

Commitment Fee

A fee paid by a borrower to a lender to keep a line of credit open or to guarantee a loan's terms.

Contractual Agreement

A contractual agreement is a legally binding exchange of promises or an agreement between parties that is enforceable by law.

Accruals

Accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transaction happens.