Consider the two graphs below. Graph A represents a typical firm in a purely competitive industry. Graph B represents the supply and demand conditions in that industry. The dashed horizontal line represents the current market price for firms and for
the industry. In the long run, what will happen to price, profit, the supply curve, and the number of firms in the industry?
What will be an ideal response?
At the current market price, firms are making an economic profit because the market price is greater than the minimum ATC. The economic profits will attract new firms to the industry, leading to an increased number of firms and increased supply in the industry, so the supply curve will shift to the right. This change will reduce the market price so the dashed horizontal line for the individual firm will fall until it just equals the minimum ATC and eliminate economic profits.
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To decrease the money supply the Fed can:
A. Reduce the reserve requirement, raise the discount rate, or sell bonds. B. Raise the reserve requirement, raise the discount rate, or sell bonds. C. Raise the reserve requirement, reduce the discount rate, or buy bonds. D. Raise the reserve requirement, raise the discount rate, or buy bonds.
Activities that go unreported to the government in order to avoid paying taxes or because the activity is illegal are known collectively as the
a. non-profit sector b. federal sector c. illegal economy d. special-interest category e. underground economy