How is the writer of an option affected by changes in its stock price?
If the stock's price comes to exceed the strike price, the writer will have to give up her underlying or buy it on the market when the holder chooses to exercise the call. If the stock's price does not pass the strike price, she keeps the money she received from selling the option she wrote.
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Assume that in a purely competitive industry: (1) the entry and exodus of firms are the only long-run adjustments; (2) firms in the industry have identical cost curves; and (3) the industry is a constant-cost industry. Explain how long-run equilibrium
is eventually achieved in the industry when there are initially economic profits and losses. What will be an ideal response?
Product differentiation makes the demand for a monopolistically competitive firm's product:
A. perfectly elastic. B. more elastic than for a monopoly. C. more inelastic than for a monopoly. D. perfectly inelastic.