The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market. All of the other firms in this market have a cost structure similar to this firm's.

-Refer to the figure above.Suppose the price in this market is $3.We expect ________.
A) the firms to start exiting this market
B) the firms start entering this market
C) no entry or exit in this market
D) exit from this market, followed by entry of firms into this market

Question

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market. All of the other firms in this market have a cost structure similar to this firm's.
 
-Refer to the figure above.Suppose the price in this market is $3.We expect ________.
A) the firms to start exiting this market 
B) the firms start entering this market 
C) no entry or exit in this market 
D) exit from this market, followed by entry of firms into this market

Quizplus · Accepted Answer

At a price of $3, this firm is able to cover both its average total cost and its marginal cost. This means that the firm is earning a normal profit and is not experiencing any losses. Therefore, there is no incentive for firms to exit the market, and with no excess profits, there is no incentive for new firms to enter the market. Thus, there will be no entry or exit in this market.

The Following Figure Shows the Marginal Cost Curve and the Average