Suppose a Typical Firm in a Competitive Industry Has the Following

question 153

Multiple Choice

Suppose a typical firm in a competitive industry has the following data in the short run: price = $4000; output = 1 million units; ATC = $4000; AVC = $3500.What will likely happen in the long run?

• A)In the long run the industry will expand because firms are earning economic profits.
• B)In the long run the industry will contract because firms are suffering losses.
• C)The size of the industry will remain the same in the long run.
• D)The typical firm would shut down,until the remaining firms have a higher price.
• E)There is not enough information to formulate an answer.

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Definitions:

Spurious Relationships

A connection between two variables that appears causal but is actually caused by a third variable.

Experimental Situation

The setting experimental subjects are placed in. This setting may be a threat to external validity if it does not reflect external reality.

External Validity

Relates to whether an experiment has in fact captured the external world that the researcher is investigating.

Attrition

The loss of participants during the course of a study, which can impact the study's outcomes and generalizability.