The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure?

A) This firm shown is earning zero economic profit.
B) The industry is in long-run equilibrium.
C) Firms will neither enter nor exit the market.
D) All of the above are true.

Question

The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure?

A) This firm shown is earning zero economic profit. 
B) The industry is in long-run equilibrium. 
C) Firms will neither enter nor exit the market. 
D) All of the above are true.

Quizplus · Accepted Answer

A) The firm is producing at the point where marginal revenue equals marginal cost, which is also where the firm earns zero economic profit.

B) In a price-taking market, firms continue to enter and exit until the price equals the minimum of the average total cost curve. At this point, firms earn zero economic profit in the long-run. The graph shows the firm producing at this point, indicating that the industry is in long-run equilibrium.

C) Since the industry is in long-run equilibrium, there is no incentive for firms to enter or exit the market. Therefore, the number of firms is stable, and firms will neither enter nor exit the market.

All of the above are true, making D the correct answer.

The Figure Shows a Representative Firm in a Price-Taker Market