Suppose a Typical Firm in a Competitive Industry Has the Following

question 48

Multiple Choice

Suppose a typical firm in a competitive industry has the following data in the short run: price = $6; output = 100 units; ATC = $8; AVC = $7.What will likely happen in the long run?

• A)In the long run the industry will expand because firms are earning economic profits.
• B)In the long run the industry will contract because firms are suffering losses.
• C)The size of the industry will remain the same in the long run.
• D)The typical firm would shut down,until the remaining firms have a higher price.
• E)There is not enough information to formulate an answer.

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Definitions:

ATC

Average Total Cost, which is the sum of all production costs divided by the quantity of output produced, incorporating both fixed and variable costs.

Agricultural Products

Goods derived from farming and agriculture, including crops and livestock.

Monopolist

An individual or company that holds exclusive control over the supply or trade of a particular good or service, allowing them to influence prices and market conditions.

Short-Run

The short-run in economics refers to a period during which at least one input, such as plant size, is fixed and cannot be changed.