Figure 14-13 Suppose a Firm in a Competitive Industry Has the Following

question 316

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 $4.50 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:

Thoracic Pressure

The pressure within the thoracic cavity, affecting the lungs and heart, essential for respiration and cardiovascular functions.

Diaphragm

A dome-shaped, muscular partition separating the thorax from the abdomen in mammals, playing a major role in breathing as its contraction increases the volume of the thorax and so inflates the lungs.

Intercostal Muscles

Muscles located between the ribs that play a role in the mechanics of breathing.

Atmospheric Pressure

The pressure exerted by the weight of the atmosphere above a specific point, affecting weather and climate conditions.