-The Above Figure Shows Three Possible Average Total Cost Curves

question 119

Multiple Choice

-The above figure shows three possible average total cost curves.If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC1,each produce 30 units,and the market price of the good is $16 per unit,then the firms

• A)make zero economic profit and firms neither enter nor exit the industry.
• B)make zero economic profit and so some firms exit the industry.
• C)incur an economic loss and so some firms exit the industry.
• D)incur an economic loss and so new firms enter the industry.
• E)make an economic profit and new firms enter the industry.

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Definitions:

Long-run Average Cost

The per unit cost of production when all inputs, including those typically fixed, can be adjusted.

Short-run Marginal Cost

The cost incurred by producing one additional unit of a product or service in the short term, where some factors of production are fixed.

Envelope

In economics, often describes a theoretical outer limit or boundary, such as the envelope curve which envelopes all the possible positions of equilibrium.

Short-run Expansion Path

The route a firm takes to increase output by optimizing the combination of inputs used, given at least one fixed input, over a short period.