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

question 147

Multiple Choice

Figure 13-13
Suppose a firm in a competitive industry has the following cost curves:
-Refer to Figure 13-13.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:

Event of Default

A specified occurrence which breaches the terms of a contract or agreement, triggering specific consequences.

Risk

The exposure to the possibility of loss, damage, or other adverse or unwelcome circumstance.

Potential Loss

The possibility of suffering a reduction in value, financial or otherwise, due to unforeseen risks.

Destruction

Destruction refers to the act of causing such significant damage to something that it loses its value, function, or identity.