MCMCАТCATCAVCAVC(1)Q(I)QMCMCPATCATCAVCAVCQ(II)(IV)QP.P PP. Refer to the graphs above of perfectly competitive fırms. Which of the following statementsis correct?In graph (I) the firm is enjoying positive economic profits. Therefore, firms will enter the market and competeaway the positive economic profits. This is due to the fact that prices will decrease from the decrease indemand.In graph (IV) the firm is earning an economic loss. Therefore, firms will enter the market and compete awaythe negative economic profits. This is due to the fact that prices will decline from the increase in supply. Inthe long-run, the the firm depicted will shut down.O In graph (I) the firm is enjoying positive economic profits. Therefore, firms will enter the market and competeaway the positive economic profits. This is due to the fact that prices will decline from the increase in supply.In graph (IV) the firm is earning an economic loss. However, the firm will.continue to operate in the short-runbecause price is greater than average variable costs. Therefore, the firm is covering average variable costs andreducing the overall burden of total fixed costs.In graph (II) economic profits for the firm is $0. Therefore, firms will not have an incentive to enter or exit themarket. However, in the long-run this firm will exit the market because of an influx of new firms in the long-run.

In graph 1, the firm is earning economic profit as price is above the ATC. The profit maximizing…

Answered: Refer to the graphs above of perfectly…

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Refer to the graphs above of perfectly competitive firms. Which of the following statements is correct?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

MC
MC
АТC
ATC
AVC
AVC
(1)
Q
(I)
Q
MC
MC
P
ATC
ATC
AVC
AVC
Q
(II)
(IV)
Q
P.
P P
P.

Refer to the graphs above of perfectly competitive fırms. Which of the following statements
is correct?
In graph (I) the firm is enjoying positive economic profits. Therefore, firms will enter the market and compete
away the positive economic profits. This is due to the fact that prices will decrease from the decrease in
demand.
In graph (IV) the firm is earning an economic loss. Therefore, firms will enter the market and compete away
the negative economic profits. This is due to the fact that prices will decline from the increase in supply. In
the long-run, the the firm depicted will shut down.
O In graph (I) the firm is enjoying positive economic profits. Therefore, firms will enter the market and compete
away the positive economic profits. This is due to the fact that prices will decline from the increase in supply.
In graph (IV) the firm is earning an economic loss. However, the firm will.continue to operate in the short-run
because price is greater than average variable costs. Therefore, the firm is covering average variable costs and
reducing the overall burden of total fixed costs.
In graph (II) economic profits for the firm is $0. Therefore, firms will not have an incentive to enter or exit the
market. However, in the long-run this firm will exit the market because of an influx of new firms in the long-
run.

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