In a Competitive Market with Identical Firms

question 197

Multiple Choice

In a competitive market with identical firms,

• A)an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.
• B)firms cannot earn positive economic profit in either the short run or long run.
• C)firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.
• D)free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

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Definitions:

Supply

Represents the total amount of a specific good or service that is available to consumers.

Income Elasticity

measures how much the quantity demanded of a good changes in response to a change in consumers' income.

Midpoint Method

A technique used in economics to calculate the percentage change between two values, averaging the initial and final values to estimate elasticity.

Normal Good

A good for which demand increases as the income of the consumer increases, holding all else constant.