Suppose a Typical Firm in a Competitive Industry Has the Following

question 125

Multiple Choice

Suppose a typical firm in a competitive industry has the following data in the short run: price = $5000; output = 100 000 units; ATC = $4600; AVC =$ 4300.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:

Activity Cost Pools

Groups of indirect cost resources that are allocated to products and services using a cost driver.

Legal Firm

A business that provides legal services and is staffed by lawyers.

Activity-Based Costing

A method of allocating overhead and indirect costs to specific products or projects based on their use of resources.

Activity Rate

The cost driver rate that is used to assign activity costs to products or services based on their consumption of the activity.