The Figure Below Shows the Supply and the Demand for a Good

question 226

Multiple Choice

The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right) . Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A.

-Refer to the figure above.Suppose that the market has reached the long-run equilibrium.Then,due to news of the product's defects and recall,the demand falls by 4 units at each price.At the new equilibrium,each firm in the market earns ________ and there will be ________.

• A) positive economic profit; entries of new firms
• B) negative economic profit; exit of existing firms
• C) zero economic profit; neither entry nor exit of firms
• D) zero accounting profit; both entry and exit of firms

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Definitions:

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