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 2
Suppose 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.
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