Use the figure to answer the following question(s).
Figure 10-5
-Given that the short-run cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?
A) The firm will make long-run economic profits.
B) The firm will face competition from new entrants into the industry, causing this firm's demand to decline until zero economic profits are restored.
C) The firm will face competition from new entrants into the industry, but since lower prices will increase total sales, profit will stay the same as that shown in the figure.
D) The firm will see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored.

Question

Use the figure to answer the following question(s).
Figure 10-5 
-Given that the short-run cost and demand conditions shown in Figure 10-5 for the competitive price-searcher firm are representative for all firms in the industry, what will happen in this industry in the long run?
A) The firm will make long-run economic profits. 
B) The firm will face competition from new entrants into the industry, causing this firm's demand to decline until zero economic profits are restored. 
C) The firm will face competition from new entrants into the industry, but since lower prices will increase total sales, profit will stay the same as that shown in the figure. 
D) The firm will see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored.

Quizplus · Accepted Answer

In the long run, new entrants will be attracted to the industry due to short-run profits, increasing competition and driving down demand for existing firms until economic profits are zero.

Use the Figure to Answer the Following Question(s)