Graph 14-8
-Refer to Graph 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) most likely reflects:

Question

Graph 14-8 
-Refer to Graph 14-8.If the figure in panel (a) reflects the long-run equilibrium of a profit-maximising firm in a competitive market, the figure in panel (b) most likely reflects:

Quizplus · Accepted Answer

The figure in panel (a) showing a firm in long-run equilibrium in a competitive market, where it makes zero economic profit, implies that free entry and exit of firms in the market will lead to a single market price in the long run, as depicted in panel (b). This is because, in the long run, firms will enter the market if there are profits to be made and exit if they are making losses, leading to a situation where only normal profits are made, and the market price stabilizes.