Suppose a firm operates in the short run at a price above its average total cost of production.In the long run the firm should expect

Question

Quizplus · Accepted Answer

In the long run, firms in a competitive market will adjust their production to meet the demand for the product. If a firm is operating in the short run at a price above its average total cost of production, it is earning profits. This, in turn, will attract new firms to enter the market, as they also seek to earn profits. As a result, the market supply will increase, leading to a fall in the market price. This fall in price will result in a decrease in the profits earned by the existing firm. Therefore, all of the above options are possible consequences that the firm should expect in the long run.

Suppose a Firm Operates in the Short Run at a Price