The graph to the right shows the Marginal Cost (MC), Average Total Cost (ATC), a

Question

The graph to the right shows the Marginal Cost (MC), Average Total Cost (ATC), and Marginal Revenue (MR) curves for a perfectly (or purely) competitive firm. Note that the Demand (D) curve is the same as the MR curve for such a firm. Assume that the cost curves here are representative of other firms in the industry. Given the current price, this firm will: earn a positive profit, earn a negative profit, earn zero economic profit. In the long run, this market will: experience exit by some firms. experience entry of additional firms. What is going to happen to the price of this product? It will stay the same. It will decline. It will increase.

Explanation / Answer

1. Firm earn a negative profit because ATC of firm is greater than the price that firm charges for their product.

2. In the long run, this market will experience exit of some firms because firms suffer loss for short period in order to earn positive profit in long run but when firms continuously suffers loss then some existing firms exit the market.

3. Price of the product will increase as when firms exit the market then supply becomes less than the demand and price of product will go up.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.