Suppose That Pasta Is Produced Under Conditions of Perfect Competition

question 83

Multiple Choice

Suppose that pasta is produced under conditions of perfect competition and that the constant-cost industry is initially in long-run equilibrium. Now suppose there is an increase in the price of wheat, which is a key ingredient in producing pasta. Further assume that the price elasticity of demand for pasta is -1.8. In the short run, we would expect to see:

• A) most firms in the industry earning positive economic profits.
• B) most firms in the industry earning zero economic profits.
• C) most firms in the industry earning negative economic profits.
• D) not enough information is given to answer the question.

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Definitions:

Offer

A proposal presented by one party to another with the intention to create a legal agreement upon acceptance.

Offer

A proposal presented by one party to another as a basis for negotiations or the formation of a contract.

Mailbox Rule

A legal principle that deems an offer accepted once the acceptance has been communicated, even if it has not yet been received by the offeror.

Letter Of Revocation

A formal document that annuls, withdraws, or cancels a previously granted power or authority.