The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. In the long run equilibrium in this market:
A)price will equal $5, and there will be 20 firms in the industry.
B)price will equal $5, and there will be 10 firms in the industry.
C)price will equal $8, and there will be 20 firms in the industry.
D)price will equal $5 and total output will equal 500 units, but there is not enough information to determine how many firms will be in the industry.

Question

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.  In the long run equilibrium in this market:
A)price will equal $5, and there will be 20 firms in the industry. 
B)price will equal $5, and there will be 10 firms in the industry. 
C)price will equal $8, and there will be 20 firms in the industry. 
D)price will equal $5 and total output will equal 500 units, but there is not enough information to determine how many firms will be in the industry.

Quizplus · Accepted Answer

Each firm earns zero economic profit when the price is $5. At that price, the total market quantity is 500 units and each firm produces 25 units, implying that there are 20 firms in the market (since 20 × 25 = 500).

The Figure Below Depicts the Short-Run Market Equilibrium in a Perfectly