Suppose That Firms Are Located in a Circle on an Island

question 26

Multiple Choice

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle) . As the firm's variable costs rise,

• A)the number of firms will rise in the long run.
• B)the number of firms will fall in the long run.
• C)the number of firms will stay the same in the long run.
• D)It is impossible to tell from the information given.

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Definitions:

Interest on Interest

The interest earned on the reinvestment of previous interest payments, often seen in compound interest scenarios.

Simple Interest

Interest charged exclusively on the initial borrowed amount, or on whatever portion of the principal is still outstanding.

Compounded Annually

A method of calculating interest in which the interest earned on an investment is reinvested, and new interest is earned on that interest annually.