Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3
-Refer to Figure 9- 3. At output Q2 and price P2, which of the following is FALSE?
A) Firm X is producing at its minimum efficient scale.
B) There are economic profits to attract new entrants.
C) There are no unexploited internal economies of scale.
D) P = MC = SRATC = LRAC.
E) The firm producing Q2 is at its long- run profit- maximizing position.

Question

Consider the following cost curves for Firm X, a perfectly competitive firm.  FIGURE 9- 3
-Refer to Figure 9- 3. At output Q2 and price P2, which of the following is FALSE?
A) Firm X is producing at its minimum efficient scale. 
B) There are economic profits to attract new entrants. 
C) There are no unexploited internal economies of scale. 
D) P = MC = SRATC = LRAC. 
E) The firm producing Q2 is at its long- run profit- maximizing position.

Quizplus · Accepted Answer

At output Q2 and price P2, the firm is earning economic profits (P2 is above the LRAC curve), which would attract new entrants and increase competition, ultimately driving down the price and eliminating economic profits in the long run. Therefore, statement B is false.

Consider the Following Cost Curves for Firm X, a Perfectly