Consider a profit maximizing firm operating in a perfectly competitive market with the cost structure illustrated by the above graph. Based on the above graph, identify whether each of the following would be true or false and briefly explain your reasoning. A. The break-even price for this firm in the short-run would be $2. B. If the short-run market price is $2.50, this firm would earn profits equal to -$135. C. If the short-run market price is greater than $2, free entry and exit would cause other firms to continue to enter the industry in the short-run until the market price falls to $2 per unit.
Consider a profit maximizing firm operating in a perfectly competitive market with the cost structure illustrated by the above graph. Based on the above graph, identify whether each of the following would be true or false and briefly explain your reasoning. A. The break-even price for this firm in the short-run would be $2. B. If the short-run market price is $2.50, this firm would earn profits equal to -$135. C. If the short-run market price is greater than $2, free entry and exit would cause other firms to continue to enter the industry in the short-run until the market price falls to $2 per unit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![For the following question use the graph below
655 35~
5.5
4
2.5
2
40 45
I
70 80
MC
ATC
AVC
Quantity
Consider a profit maximizing firm operating in a perfectly competitive market with the cost
structure illustrated by the above graph. Based on the above graph, identify whether each of the
following would be true or false and briefly explain your reasoning.
A. The break-even price for this firm in the short-run would be $2.
B. If the short-run market price is $2.50, this firm would earn profits equal to -$135.
C. If the short-run market price is greater than $2, free entry and exit would cause other firms to
continue to enter the industry in the short-run until the market price falls to $2 per unit.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F585a88f7-c362-4093-9f21-205d6e177e70%2Fda8f39d2-cd45-4e5b-ab63-469a74620c71%2Fsju3vem_processed.png&w=3840&q=75)
Transcribed Image Text:For the following question use the graph below
655 35~
5.5
4
2.5
2
40 45
I
70 80
MC
ATC
AVC
Quantity
Consider a profit maximizing firm operating in a perfectly competitive market with the cost
structure illustrated by the above graph. Based on the above graph, identify whether each of the
following would be true or false and briefly explain your reasoning.
A. The break-even price for this firm in the short-run would be $2.
B. If the short-run market price is $2.50, this firm would earn profits equal to -$135.
C. If the short-run market price is greater than $2, free entry and exit would cause other firms to
continue to enter the industry in the short-run until the market price falls to $2 per unit.
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