Consider a Perfectly Competitive Market Experiencing Good Times

question 5

Multiple Choice

Consider a perfectly competitive market experiencing good times.In the short run,the equilibrium price will ________ and firms will earn a(n) ________.

• A) increase; economic profit as the new price exceeds average total cost
• B) increase; normal profit as the new price exceeds average total cost
• C) decrease; economic loss as new firms enter the industry
• D) decrease; economic profit as firms exit the industry
• E) may increase or decrease; normal profit depending on their costs

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Definitions:

Dishonored Note

A dishonored note is a promissory note that has not been paid by the maker at its maturity date.

Direct Write-Off Method

An accounting method where bad debts are charged against income at the time they are deemed irrecoverable, rather than being anticipated in advance.

Interest

Interest is the cost paid for borrowing money, typically expressed as a percentage of the amount borrowed over a certain period of time.

Adjusting Entry

A journal entry made in the accounting records at the end of an accounting period to allocate income and expenditure to the appropriate period.