If perfectly competitive firms are making an economic profit, the economic profit
A) attracts entry by more firms, which lowers the price.
B) can be earned both in the short run and the long run.
C) is less than the normal profit.
D) leads to a decrease in market demand.
E) generally leads to firms exiting as they seek higher profit in other markets.
A
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Suppose the United States is experiencing a balance of payments surplus. To prevent the exchange rate from appreciating, the U.S. Treasury must
A) sell dollars and buy foreign currency. B) sell both dollars and foreign currency. C) buy both dollars and foreign currency. D) sell foreign currency and buy dollars.
The cost-plus-markup theory is an inadequate explanation of relative prices because
A) it does not explain why there is a standard percentage markup in most industries. B) it is too simple, and simple theories are rarely as useful as more complex theories. C) the theory is inconsistent with observable relationships between marginal costs and prices. D) people who actually set prices do not describe the process as cost-plus.