In Perfectly Competitive Markets, an Implication of Entry and Exit

question 17

Multiple Choice

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

• A)firms must earn positive economic profits in the long run.
• B)firms will produce the quantity that minimizes average variable costs in the short run.
• C)firms will produce the quantity that minimizes average total costs in the long run.
• D)market demand is completely elastic.

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Definitions:

Investment Banks

Firms that assist in the design of an issuing firm’s corporate securities and in the sale of the new securities to investors in the primary market.

Public Trading Companies

Corporations whose shares are listed and traded on public stock exchanges, making their ownership publicly accessible.

Adequate Capital

Sufficient funds required by a business to finance its operations and meet its obligations without facing financial distress.

Bank Run

A situation where a large number of a bank's customers try to withdraw their deposits simultaneously because they believe the bank might fail.