In a perfectly competitive market, the demand curve faced by each firm is:
a. highly inelastic.
b. perfectly elastic.
c. perfectly inelastic.
d. less elastic.
Question 2
On August 5, 2003, a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky. Assume that the U.S. market for whiskey is perfectly competitive, and that the market was originally in long run equilibrium. What would be the effects of such an incident?
a. An increase in supply would cause a reduction in price, which would then lead to entry of firms.
b. A decrease in supply would cause an increase in price, which would then lead to entry of firms.
c. An increase in supply would cause an increase in price, which would then lead to entry of firms
d. A decrease in supply would cause an increase in price, which would then lead to exit of firms.
e. Price of the whiskey would remain unchanged and the existing firms would continue to earn zero economic profit.
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