Assume That the LCD and Plasma Television Sets Industry Is

question 174

Multiple Choice

Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

• A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate.
• B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.
• C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.
• D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

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Definitions:

Investor

An individual or entity that allocates capital with the expectation of receiving financial returns.

Creditor

An individual or institution that lends money or extends credit to another party.

Accounting Assumption

Fundamental beliefs or principles that guide the preparation of financial statements, such as going concern, accrual basis, and consistency.

Integrity

The quality of being honest and having strong moral principles; moral uprightness.