Assume the Market for Beef Is Perfectly Competitive

question 56

Multiple Choice

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch to beef from chicken, which of the following is most likely to occur?

• A) Beef producers will now incur economic profits in both the short run and the long run.
• B) Beef producers will incur economic profits in the short run. Some producers will enter the industry until all firms in the industry are earning a zero economic profit.
• C) Beef producers will incur economic profits in the short run. Some producers will enter the industry as long as all firms in the industry are earning an economic profit.
• D) Beef producers will now earn economic losses in the short run, and there will be no additional adjustments in the long run.

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Definitions:

Nominal Interest Rate

The interest rate before adjustments for inflation; the rate quoted by financial institutions.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender.

Inflation

The rate of increase in the general price level for goods and services, leading to a decline in buying power.

Inflation

The pace at which the average price for goods and services climbs, weakening the capacity to purchase.