Figure 7-13
-Figure 7-13 shows the average total cost curves of four firms that produce milk.Some of the dairies are more productive.AR = P is the long-run price of milk.How many of these dairies will remain in the industry in the long run?
A)All of them
B)Only 2
C)Only 3
D)Cannot determine with information given

Question

Figure 7-13 
-Figure 7-13 shows the average total cost curves of four firms that produce milk.Some of the dairies are more productive.AR = P is the long-run price of milk.How many of these dairies will remain in the industry in the long run?
A)All of them 
B)Only 2 
C)Only 3 
D)Cannot determine with information given

Quizplus · Accepted Answer

In the long run, firms will remain in the industry if they can cover their average total costs (ATC) at the market price (P). Since AR = P represents the long-run price of milk, any firm whose ATC curve lies at or below this price at some output level will be able to cover its costs and earn normal profit, thus having no incentive to exit the industry. If three of the firms have ATC curves that intersect or lie below the AR = P line at some level of output, they will remain in the industry in the long run, while any firm with an ATC curve entirely above the AR = P line would exit the industry since it cannot cover its average total costs at the market price.

Figure 7-13 -Figure 7-13 Shows the Average Total Cost Curves of Four