1) When positive economic profits exist in an industry:
- the market price of the good produced by the industry is less than the marginal cost faced by the industry.
- the market price of the good produced by the industry is less than the average total cost of the industry.
- there is an exit of firms from the industry.
- resources flow from less productive uses to that particular industry.
2) When price is less than the firms' minimum average total cost, ________.
- firms' profits are likely to be maximum
- prices are likely to fall further
- new firms will enter the market
- existing firms will leave the market
3) The entry of new firms into a perfectly competitive market will cause:
- an increase in the profitability of existing firms.
- a decrease in the profitability of existing firms.
- a right shift of the demand curve of the good being produced by the firms.
- a left shift of the demand curve of the good being produced by the firms.
4) Entry of new firms into an existing market causes:
- a downward movement along the market supply curve.
- a leftward shift of the market supply curve.
- an upward movement along the market supply curve.
- a rightward shift of the market supply curve.
5) The incentive for new firms to enter into a perfectly competitive market is primarily the:
- high level of government intervention in the market.
- large number of buyers in the market.
- large number of existing firms in the market.
- positive profits observed for the existing firms in the market.