A perfectly competitive firm initially is earning zero economic profit. Then, a decrease in demand for the firm's product occurs. Of the following, in the long run which action listed below is the firm most likely to take?
A) Increase the quantity it produces.
B) Increase its advertising to increase the demand for its product.
C) Exit the market.
D) Increase the size of its plant.
C
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An oligopoly is a market situation in which
A) there are many firms producing differentiated products. B) there is a single firm producing several varieties of a product. C) all the sellers act independently of the others. D) there are very few sellers and they recognize their strategic dependence on one another.
Perfectly competitive firms are earning economic profits at a market price of $18 and an average total cost of $15. If new firms enter and increase the average total cost for all firms, the market price will ________ until ________.
A) fall; it reaches the new lower average total cost B) increase; it reaches the new higher average total cost C) fall; it reaches the new higher average total cost D) increase; economic profits are equal to zero