Question 1
Assume the wool industry is perfectly competitive. The market demand curve for wool is ________ and each individual wool producer's demand curve is ________.
◦ downward sloping; horizontal
◦ horizontal; downward sloping
◦ horizontal; horizontal
◦ downward sloping; downward sloping
Question 2
Free entry implies that
◦ a perfectly competitive firm can never earn a profit.
◦ if firms in an industry are making excessively high profits, new firms are likely to enter the industry.
◦ the government regulates the number of firms that are allowed in an industry.
◦ firms will always earn a profit, as new firms can enter the industry at any time they like.