When a Competitive Market That Comprises Firms That Face Identical

question 39

Multiple Choice

When a competitive market that comprises firms that face identical cost structures experiences an increase in demand, which of the following is most likely to occur?
(i) new firms will enter the market.(ii) in the long run, price will return to the level that existed before the change in demand
(iii) in the long run, all firms will be producing at their efficient scale

• A)(i) and (ii) only
• B)(i) and (iii) only
• C)(ii) and (iii) only
• D)(i), (ii) and (iii)

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Definitions:

Efficient Market

A market theory that suggests all available information is already reflected in stock prices, hence investments cannot consistently outperform the market.

Profit Opportunities

Situations in which it is possible for businesses or individuals to make a financial gain.

Opportunity Cost

The penalty of not picking the second most preferable solution in the decision process.

Agricultural Output

The total quantity of agricultural products, such as crops and livestock, produced within a specified period.