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

question 265

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 P2 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:

Load

The amount of electrical power or physical weight that is applied or carried by a system or component.

Spool Valves

Mechanical devices used in hydraulic and pneumatic systems to control the flow of fluid or air, typically by moving a cylindrical spool within a housing to open or close channels.

Hydraulically

Pertaining to or involving the movement or operation of devices through the pressure of liquids in motion.

Electrically

Pertaining to the use or operation by electricity, involving electronic circuits or devices.