If Input Prices for Perfectly Competitive Firms Increase as the Output

question 163

Multiple Choice

If input prices for perfectly competitive firms increase as the output of its industry expands:

• A) their short run average cost curves will shift up as the industry expands.
• B) after a permanent increase in demand, the long run equilibrium price will be higher than the original price.
• C) after a permanent increase in demand, the short run equilibrium price will be higher than the eventual long run equilibrium price.
• D) all of the above will be true.

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Definitions:

COGS

Cost of Goods Sold represents the direct costs associated with the production of the goods sold by a company.

Line of Credit

A flexible loan arrangement with a financial institution that allows a borrower to draw funds up to a specified limit at any time.

Compensating Balance

A minimum bank account balance that a borrower must maintain as a condition for some types of loans and lines of credit.

Effective Annual Interest Rate

The interest rate that is adjusted for compounding over a given period. Essentially, it reflects the total interest that will be paid or earned over a year, taking into account the effect of compounding.