Refer to the following:

The graph on the left shows the short-un cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.
-What do you expect to happen in the long-run?

Question

Refer to the following:
  
The graph on the left shows the short-un cost curves for a firm in a perfectly competitive market, and the graph on the right shows the current market conditions in this industry.
-What do you expect to happen in the long-run?

Quizplus · Accepted Answer

In a perfectly competitive market, firms will enter the market in the short-run if they can earn positive economic profit. This will shift the market supply curve to the right, which will decrease the market price. As a result, the firm's profit will decrease in the long-run, and some firms may exit the market. Therefore, both b and c are expected to happen in the long-run. Option A is incorrect because market supply will increase, not decrease. Option E is incorrect because it includes option A, which is incorrect.

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