Table 14-3
The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2.
-Refer to table 14-3.Suppose the current market price is $2.Which of the following is likely to occur?

Question

Table 14-3
The market for Whizzly Jigs consists of many identical firms, each with the cost structure below.Suppose the current market price is $2.  
-Refer to table 14-3.Suppose the current market price is $2.Which of the following is likely to occur?

Quizplus · Accepted Answer

At a market price of $2, each firm in the market is making a loss. In the short-run, firms may choose to continue operating at a loss as long as their revenue covers their variable costs. However, in the long-run, firms will not be able to sustain losses indefinitely and will exit the market, resulting in a decrease in the number of firms in the industry. Thus, Option B is the most likely outcome.

Table 14-3 The Market for Whizzly Jigs Consists of Many Identical Firms