Figure 8.2
-Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn?
A) $0
B) $306
C) $312
D) $1000.
E) $1024

Question

Figure 8.2
-Refer to Figure 8.2. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, how much profit will the firm earn?
A) $0 
B) $306 
C) $312 
D) $1000. 
E) $1024

Quizplus · Accepted Answer

In the long-run equilibrium, economic profits are driven to zero as new firms enter the industry, driving down prices and reducing the profits of existing firms. In Figure 8.2, the firm's average total cost curve intersects the market demand curve at the price of $6, which allows the firm to earn a profit of $6 - $4 = $2 per unit. However, at the long-run equilibrium, the price will be pushed down to the minimum point of the average total cost curve, which is $4. At this price, the firm will only break even and earn zero economic profits. Therefore, the correct choice is A) $0.

Figure 8.2 -Refer to Figure 8.2. as the Competitive Industry, Not Just