Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: 10 9 8- 45 ↑Price 3.5 3+ MC ATC AVC 123 4 5 6 7 8 Quantity 4 All Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run? a. Because the price is below the firm's average variable costs, the firms will shut down. b. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. c. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. d. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.

Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: 10 9 8- 45 ↑Price 3.5 3+ MC ATC AVC 123 4 5 6 7 8 Quantity 4 All Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run? a. Because the price is below the firm's average variable costs, the firms will shut down. b. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. c. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. d. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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