Refer to the graph shown. If the government set the selling price equal to the marginal cost, the firm in the graph would be:
A. making zero economic profits.
B. sustaining losses and eventually would go out of business.
C. making economic profits.
D. making normal profits.
Answer: B
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In a perfectly competitive market:
A) the long-run market price is equal to the average fixed cost of the industry. B) the long-run market price is less than the minimum average cost of the industry. C) the long-run market price is more than the minimum average cost of the industry because of free entry and exit of firms. D) the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.
Under the liquidity premium theory, if investors expect short-term interest rates to remain constant, the yield curve should:
A. be flat. B. have a negative slope. C. have a positive slope. D. have an increasing slope.