Suppose a typical competitive firm has the following data in the short run: price = $10; output =
100 units; ATC = $8; AVC = $7. What will likely happen?
A) In the long run the industry will expand because of economic profits.
B) The typical firm would shut down, until the remaining firms have a higher price.
C) The size of the industry will remain the same in the long run.
D) In the long run the industry will contract because firms are suffering losses.
E) There is not enough information to formulate an answer.

Question

Quizplus · Accepted Answer

The firm is making an economic profit because the price ($10) is greater than the average total cost (ATC) of $8. This will likely attract new firms to enter the industry in the long run, leading to expansion.

Suppose a Typical Competitive Firm Has the Following Data in the Short