See attached image 3.8 On the following graph for a purely competitive industry,Scale 1 represents the short-run production for a repre-sentative firm. Explain what is currently happening withfirms in this industry in the short run and what will likelyhappen in the long run.Dollars ($)Scale 1SRACSRMCLRAC9P* = 4P* = d = MR%3D5,000 Units of output, Q

Average cost is alluded to as the aggregate of all creation costs partitioned by the complete amount of yield. At the end of the day, the normal expense is the blend of all out fixed and variable expenses, which is partitioned by the complete number of units that are created by the firm. From the above diagram, we summarize that, in purely competitive industry firms are losing cash as the average expense ($9) for the product is higher than its selling value ($4). However, assuming price falls average total expense, then, at that point, the firm causes a financial loss. The inquiry is whether the firm should continue to produce in the short run and cause a working loss or shut down anticipating a more higher cost. Assuming price stays better than expected variable expense, then, at that point, the firm creates sufficient income to pay all factor cost, in addition to a piece of fixed expense. So it delivers the amount that likens marginal income and marginal expense. In the event that the price falls average variable expense, as per graph shows then, at that point, the firm is in an ideal situation stops production in the short run. By producing any yield, it doesn't produce sufficient income to take care of variable expense not to mention any fixed expense. The loss brought about is more prominent than fixed expense. The firm can bring about a more modest loss by delivering zero yield and paying fixed expense. In long run, a portion of the organizations will leave the business and cost will go up to the ideal level.