Figure 7-13

Figure 7-13 shows the average total cost curves of four firms that produce milk. Some of the dairies are more productive. AR = P is the long-run price of milk. How many of these dairies will remain in the industry in the long run?
A)All of them
B)Only 2
C)Only 3
D)Cannot determine with information given

Question

Figure 7-13

Figure 7-13 shows the average total cost curves of four firms that produce milk. Some of the dairies are more productive. AR = P is the long-run price of milk. How many of these dairies will remain in the industry in the long run?
A)All of them 
B)Only 2 
C)Only 3 
D)Cannot determine with information given

Quizplus · Accepted Answer

In the long run, firms will only remain in the industry if they are able to cover their average total cost at the given long-run price (AR = P). Looking at the graph, we can see that only the first three firms are able to cover their average total cost at the given long-run price. Therefore, only three dairies will remain in the industry in the long run.

Figure 7-13 Figure 7-13 Shows the Average Total Cost Curves of Four