Consider Figure 4 below showing the average cost (AC), average variable cost (AVC), and marginal cost (MC) for a perfectly competitive firm. MC AC AVC P3 P2 P1 Q1 Q2 03 Figure If the market price is P with P2

Consider Figure 4 below showing the average cost (AC), average variable cost (AVC), and marginal cost (MC) for a perfectly competitive firm. MC AC AVC P3 P2 P1 Q1 Q2 03 Figure If the market price is P with P2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider Figure 4 below showing the average cost (AC), average variable cost (AVC), and
marginal cost (MC) for a perfectly competitive firm.
MC
AC
AVC
Q1
Q2
03
Figure
If the market price is P with P2<P<P3, which of the following is true?
O a.
The firm will close in the long-run but remain open in the short-run.
O b. The firm will close in the short-run.
O C. More firms will enter the industry, driving down the price.

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