1. Exhibit U-8 presenting firm A and tirm B to answer the following questions. A
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1. Exhibit U-8 presenting firm A and tirm B to answer the following questions. All underlyung work must be shown (4 pounts) e. Refer to your answer above. Explai what wll happen as the result of the lg-run adjustment to the industry A: Exhibit U-8 Firm A Firm B - Market price Price and Cost dollars) Number of sellers (firms) Profi Industry output (dollars) MC ATC t earned by typical firm and the industry A 10 f Is firm B and the inustry represented by firm in the long-run equilibrium or short-run equilibrium? Why yes, why not? Explain 7O 0 100 Quantity 100 150 200 g. What should firm B and the industry B expect in the long-run? Explain why? Quantity h. Refer to your answer above. industry B Explam what will happen as the result of the lotg nun ac ustrient to the - Market price c Is firm A and the industry represented by firm A in the long-run equilibrium or short-run equilibriurn? Why yes, why not? Explain Number of sellers (firms) Profit earned by typical firm and the industry B Itidustry output - d. What should firm A and the industiy A expect in tha long-un? Explain why? 1 In the long run equilibrium perfectly competitive firm does not earn any profit, so will not stay in the industry Do you agree ExplairExplanation / Answer
c) The firm A is in the short run because price is greater than average cost (ATC).The firm is not in the long-run because long-run equilibrium is characterized by price = ATC.
d) In the long- run price will be equal to ATC and profits will be normal or zero economic profit. Because in the short-run Price>ATC. This implies firm is earning super normal profit. This will lead to entry of more firms I the industry. Thus, reducing price and the profit.
e) Market price will decrease because the number of firms will increase.
Number of sellers will increases because in short-run industry is witnessing positive profits.
Profits will be reduced because no of firms will increase and price will decrease as supply increases.
Industry output will increase as number of firms will increase.
f) Firm B is in the long-rum equilibrium because price is below ATC and above AVC. Due to the large number of firms in the industry firms are able to cover their variable cost completely and some part of fixed cost and are thus operational.
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