Which of the following is false of perfectly competitive firms?
a. As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price.
b. In a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices.
c. In a constant-cost competitive industry, the long-run effect of an increase in demand is an increase in industry output but no change in the industry price.
d. All are true.
Question 2
Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. Which of the following statements is true?
a. Brazil has a comparative advantage in producing coffee.
b. Brazil has a comparative advantage in producing both coffee and sugar.
c. Chile has a comparative advantage in producing both coffee and sugar.
d. Neither Chile nor Brazil has a comparative advantage in producing coffee.
e. Brazil has a comparative advantage in producing sugar.
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