Consider the Following Cost Curves for Two Perfectly Competitive Firms

question 95

Multiple Choice

Consider the following cost curves for two perfectly competitive firms, A and B. FIGURE 9- 4
-Refer to Figure 9- 4. Firms A and B are in the same industry. Choose the statement that best describes the situation facing the two firms.

• A) Firm A and Firm B are both suffering economic losses and will soon exit the industry.
• B) Firm A is making losses but remains producing as long as price falls no further; Firm B is producing at lower cost and is earning economic profits.
• C) Firm A and Firm B are both earning positive economic profits; new firms will likely enter the industry.
• D) Firm A is suffering losses and will be shut down immediately; Firm B will be shut down if the price falls any further.

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Definitions:

Northwest Airlines

A major airline based in the United States that operated until it merged with Delta Airlines in 2010.

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