Describe the process that would occur in the long run in a competitive industry if there were economic profits. Illustrate this with a diagram.
What will be an ideal response?
The diagram should look like Figure 10-7 in the text. If there are economic profits, firms will enter the industry. The industry supply will increase and the price will fall. As the price falls, the profits of each firm will fall. The (representative) firm will therefore cut output, moving downward on its marginal cost curve. The process of entry will end when each firm is at the bottom of average cost so that there are no economic profits.
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The situation in which the difference in interest rates between two currencies is equal to the expected change in the spot rate over the same time period is known as:
A) covered interest arbitrage B) covered interest parity C) uncovered interest parity D) uncovered interest arbitrage
All of the following will cause the supply curve of good A to shift rightward EXCEPT
A) a reduction in the prices of inputs used to produce good A. B) an increase in the number of firms in the industry producing good A. C) a decrease in the per-unit tax on good A which producers must pay. D) an increase in the market price of good A.