Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see
A)Entry into this industry.
B)Exit from this industry.
C)No change in the number of firms in this industry.
D)Costs rise to absorb the profits earned by the firms in the industry.

Question

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100,we expect to see
A)Entry into this industry. 
B)Exit from this industry. 
C)No change in the number of firms in this industry. 
D)Costs rise to absorb the profits earned by the firms in the industry.

Quizplus · Accepted Answer

At the current market price of $100, the firm is earning profits, as its average total cost is lower than the price. This will attract new firms to enter the industry, as they too can earn profits at this price. As a result, we can expect to see entry into this industry.