There are 1,000 identical firms in a purely competitive industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?

• A.Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease.
• B.Firms will exit the market and the product price will rise.
• C.Additional firms will enter the market and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs).

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The following figure shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect?

• A.3
• B.7
• C.10

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Which of the following statements regarding investment companies is FALSE?

• A.Investment companies invest exclusively in long-term instruments such as stocks, bonds and real estate.
• B.Investors that purchase shares from an investment company become owners of the investment company.
• C.Investment companies provide a means of acquiring international securities.

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The optimal portfolio includes all of the following characteristics except which of the following?

• A.The optimal portfolio lies at the point of tangency between the efficient frontier and the highest possible utility curve.
• B.The optimal portfolio may be different for each investor, but for a given investor it has the highest utility.
• C.Utility curves may be different for individual investors even though the optimal portfolio for each investor is presumed to be the same.

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The characteristics of indifference curves do not include which of the following?

• A.Indifference curves are everywhere dense and cannot cross.
• B.Indifference curves lying farthest to the northeast of a diagram are always preferred.
• C.Indifference curves are always concave from below.

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