Figure: Profit Maximization 6 At any price above $60 in this diagram, firms already in this market will be making an economic: A) profit (P A C), causing other firms to enter the industry in the long run. B) loss (P A C), causing other firms to enter the industry in the short run. D) loss (P

Question

Figure: Profit Maximization 6 At any price above $60 in this diagram, firms already in this market will be making an economic: A) profit (P > A C), causing other firms to enter the industry in the long run. B) loss (P < A C) and will exit the industry in the short run. C) profit (P > A C), causing other firms to enter the industry in the short run. D) loss (P < A C) and will exit the industry in the long run.

Quizplus · Accepted Answer

At any price above $60, firms already in the market are making a profit (P > AC), which means they are covering their average costs and generating a surplus. This will attract other firms to enter the industry in the long run, which will increase competition and put downward pressure on prices. However, in the short run, existing firms will continue to make a profit as they have already established their production processes and can benefit from economies of scale. Therefore, option A is the correct choice.

Figure: Profit Maximization 6 at Any Price Above $60