Competitive firms are most likely to exist when average cost curves:
A)are U- shaped and achieve their minimum at relatively small output.
B)are horizontal.
C)are U- shaped and achieve their minimum at relatively large output.
D)are upward sloping.

Question

Quizplus · Accepted Answer

Competitive firms exist in industries where firms can enter and exit easily. To enter the industry, firms must be able to produce at a cost that allows them to compete with existing firms. A U-shaped average cost curve means that the firm can produce at a lower cost at higher levels of output, which allows them to be competitive with other firms in the industry. Additionally, achieving the minimum at relatively small output means that the firm is able to produce at a scale that allows them to compete effectively with other firms.

Competitive Firms Are Most Likely to Exist When Average Cost