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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