Suppose a Perfectly Competitive Market Is in a Short-Run Equilibrium

question 227

Multiple Choice

Suppose a perfectly competitive market is in a short-run equilibrium.If some firms exit the market,the profit of the remaining firms ________; if some firms enter the market,the profit of each existing firm ________.

• A) decreases; is unchanged
• B) increases; decreases
• C) increases; is unchanged
• D) is unchanged; is unchanged
• E) decreases; increases

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Definitions:

Market Price

The market price is the current price at which an asset or service can be bought or sold, determined by the forces of supply and demand in the market.

Reservation Price

The maximum amount a consumer is willing to pay for a good or service, beyond which they will not purchase the product.

Price Discrimination

The strategy of selling the same product to different customers at different prices based on factors like willingness to pay, not costs.

Discrete Pricing

Discrete pricing refers to the practice of setting prices at fixed amounts rather than having a continuous range of prices, often seen in goods sold in whole units rather than continuous quantities.