The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A.

-Refer to the figure above.As firms enter or exit,the market will tend toward the long-run equilibrium,where each firm earns ________ at the price ________.

Question

The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A.
 
-Refer to the figure above.As firms enter or exit,the market will tend toward the long-run equilibrium,where each firm earns ________ at the price ________.

Quizplus · Accepted Answer

In the long-run equilibrium, firms will enter or exit the market until each firm earns zero economic profit. From the graph, we can see that at a price of $2, the quantity supplied (QS) equals the quantity demanded (QD) which means the market is in equilibrium. At this price, each firm earns zero economic profit, which is equal to the minimum of the average total cost (ATC) curve. Therefore, the answer is C.

The Figure Below Shows the Supply and the Demand for a Good