Suppose a Competitive Market Is Comprised of Firms That Face

question 277

Multiple Choice

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? i) New firms will enter the market.
Ii) In the short run, price will rise; in the long run, price will rise further.
Iii) In the long run, all firms will be producing at their efficient scale.

• A) i) and ii) only
• B) i) and iii) only
• C) ii) and iii) only
• D) i), ii) and iii)

---

Definitions:

Monopolists

Entities or individuals that have exclusive control over the supply of a particular good or service, potentially leading to distorted markets and higher prices.

Internalize

The process of absorbing or incorporating the costs or benefits of a transaction or activity, which were previously external to a market decision-maker, into their own decision-making process.

Nationalized

Refers to industries or assets that have been transferred from private to government ownership.

Best Interest

A principle that guides decisions by prioritizing the benefits and welfare of those affected over other considerations.