The Figure Below Depicts the Short-Run Market Equilibrium in a Perfectly

question 31

Multiple Choice

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is:

• A)unrealistic because each firms is unique.
• B)realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others.
• C)unrealistic because firms closely guard the details of their production processes.
• D)realistic because firms rarely seek out cost-saving innovations.

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Definitions:

Aggregate Supply Curve

A diagram that exhibits the comprehensive volume of goods and services that economic producers are ready and capable of supplying at assorted price levels.

Aggregate Demand Curve

A graph representing the total demand for goods and services within an economy at various price levels.

Government Spending

The total amount of public expenditure by government agencies and institutions.

Great Depression

A severe worldwide economic depression in the 1930s, marked by high unemployment, deflation, and significant declines in economic activity.