Figure 14-13 Suppose a Firm in a Competitive Industry Has the Following

question 230

Multiple Choice

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:

-Refer to Figure 14-13.If the price is P1 in the short run,what will happen in the long run?

• A) Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
• B) Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
• C) Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
• D) Because the price is below the firm's average variable costs, the firms will shut down.

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Definitions:

Market Demand

The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

Total Revenue

The total income a firm receives from selling its goods or services, calculated as the price per unit times the number of units sold.

Total Cost

Total Cost is the sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Marginal Revenue Curve

A graph illustrating the additional revenue a firm gains when it sells one additional unit of a product.