The Diagram Below Shows Selected Cost and Revenue Curves for a Firm

question 11

Multiple Choice

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry. FIGURE 11-1
-Refer to Figure 11-1.Which of the following statements best describes the long-run equilibrium for this firm?

• A)New firms will enter,causing this firm's demand curve to shift to the left until its profits are eliminated.
• B)The firm will continue to earn its existing level of profits.
• C)The firm will continue to earn its existing level of profits because it can prevent the entry of new firms to the market.
• D)Firms with similar cost structures will exit the industry until profits are zero.
• E)The AC curve will shift down in the long run and profits for this particular firm will increase.

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Definitions:

Tradable Emissions Permits

A system that allows for the buying and selling of pollution allowances to regulate the total level of certain pollutants.

Equilibrium Price

The cost where the amount of a product or service sought after matches the amount available, achieving equilibrium in the market.

Equilibrium Quantity

The measure of goods or services that are supplied and in demand at the price where supply equals demand.

Tradable Emission Permits

Environmental policy tools that allow companies to buy or sell allowances to emit a certain amount of pollutants, incentivizing pollution reduction.