If a perfect competitor faces P = ATC in the long run, the firm will
A) earn economic profits.
B) earn economic losses.
C) leave the industry.
D) remain in the industry.
Answer: D
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A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one
Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced A) will decrease. B) will stay the same. C) will increase. D) changes, but the direction of the change is ambiguous.
To correct for the social impact of pollution, the government should levy a per-unit tax
A) that is the same for all polluters regardless of their locations or sizes. B) according to the economic damage of the pollution. C) according to the business activity of the polluter. D) only to those polluters that can afford to pay for the tax.