Figure: The Restaurant Market (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant in a community.Assume that many firms, differentiated products, and easy entry and easy exit characterize the restaurant market.If the restaurant shown here is typical of others in the community, then in the long run, we would expect to observe:

Question

Figure: The Restaurant Market  (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant in a community.Assume that many firms, differentiated products, and easy entry and easy exit characterize the restaurant market.If the restaurant shown here is typical of others in the community, then in the long run, we would expect to observe:

Quizplus · Accepted Answer

The curve labeled ATC represents the average total cost curve for the typical restaurant in the community. The curve labeled P represents the average revenue curve for the restaurant. In the long run, if the market is characterized by easy entry and exit, firms will enter if they see profit opportunities and exit if they do not make a profit. In this case, the average total cost curve is above the average revenue curve, indicating that the restaurant is not making a profit. Therefore, we would expect to see some restaurants leaving the market and new restaurants entering in search of profit opportunities.

Figure: the Restaurant Market (Figure: the Restaurant Market) the Figure