In the long run, the firm in Exhibit 105 can expect
A)to shut down
B)entry into the industry which will reduce the demand for their product and lower their profit
C)exit from the industry which will increase demand for their product and increase their profitability
D)competitors to differentiate their products which will reduce the demand for their product and lower their Profit
E)no change in the industry

Question

In the long run, the firm in Exhibit 10­5 can expect
A)to shut down 
B)entry into the industry which will reduce the demand for their product and lower their profit 
C)exit from the industry which will increase demand for their product and increase their profitability 
D)competitors to differentiate their products which will reduce the demand for their product and lower their Profit 
E)no change in the industry

Quizplus · Accepted Answer

The exhibit shows that the firm is making losses in the short run due to production at the point where MC=MR. This indicates that the market demand for their product is lower than the cost of producing it. In the long run, the firm can expect new firms to enter the industry, which will increase competition and reduce the demand for their product. This will lower their profit further, possibly leading to exit from the industry.

In the Long Run, the Firm in Exhibit 10­5 Can

In the Long Run, the Firm in Exhibit 105 Can