If a Firm in a Perfectly Competitive Market Is Operating

question 44

Multiple Choice

If a firm in a perfectly competitive market is operating at its profit-maximizing level of output and suddenly faces a reduction in the price it can charge for its product,will the firm suspend operations?

• A)No,because it can always raise its prices in the short run.
• B)No,because it can always raise its prices in the long run.
• C)No,as long as the firm earns sufficient revenue to pay all of the variable costs.
• D)Yes,since it never makes sense to operate at a loss,even in the short run.
• E)No,because it always makes sense to operate at a loss,even in the long run.

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Definitions:

Net Income

The ultimate earnings of a company after all deductions, including expenses and taxes, from revenue.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's earnings.

Equity in Income

The share of income from investments in associates over which the investor has significant influence but does not control.