Use the following to answer question:
Figure 8.19
-(Figure 8.19) The graph represents three perfectly competitive firms. Which of the following statements is (are) TRUE?

Question

Use the following to answer question:
Figure 8.19  
-(Figure 8.19) The graph represents three perfectly competitive firms. Which of the following statements is (are) TRUE?

Quizplus · Accepted Answer

Statement II is true because each firm in a perfectly competitive market is a price taker, meaning that they cannot individually affect the market price and must accept the price that the market determines. This is shown in the graph as all three firms producing the same quantity and selling at the same price level.
Statement III is true because in the long run, in a perfectly competitive market, firms will enter or exit the market based on the level of profits. If firms are earning positive economic profits, new firms will be attracted to the market until the profits are driven down to zero. If firms are earning negative economic profits, firms will exit the market until the remaining firms are earning zero economic profits. This is shown in the graph as Firm 1 exiting the market, causing the price to increase and the remaining firms increasing their quantity supplied to maintain zero economic profit. Statement I is not explicitly shown in the graph and thus cannot be concluded.

Use the Following to Answer Question