Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium. Which of the following will not be part of the industry adjustment process to a permanent increase in demand?
a. Some firms will temporarily make economic profits.
b. Some new firms will enter.
c. The long run equilibrium price will be higher than the initial equilibrium price.
d. All of the above will be consequences.
QUESTION 2Suppose France can produce 9,000 potatoes or 3,000 lemons per day, and that Italy can produce 3,000 potatoes or 3,000 lemons per day. Which of the following statements in this context is true?
a. France has an absolute advantage in producing lemons.
b. Italy has a comparative advantage in producing potatoes.
c. Italy would be willing to trade one lemon for anything greater than one potato.
d. Both countries would be willing to trade at a rate of one lemon for one potato.
e. France has a comparative advantage in producing lemons.
QUESTION 3In the market for potatoes, where price level reaches its low in October and its peak in June, speculators help to:
a. keep the equilibrium price uniform over the year.
b. lower the level of consumption in June.
c. lower the level of consumption in October.
d. keep the equilibrium price level low over the year.
QUESTION 4Suppose that Megabucks Corporation is earning an economic profit of 4,000 through the sale of a product. If the price of the product is 6 per unit and its ATC is 4 per unit, Megabucks must be producing 8,000 units.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 5If input prices for perfectly competitive firms increase as the output of its industry expands:
a. their short run average cost curves will shift up as the industry expands.
b. after a permanent increase in demand, the long run equilibrium price will be higher than the original price.
c. after a permanent increase in demand, the short run equilibrium price will be higher than the eventual long run equilibrium price.
d. all of the above will be true.
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