Figure 12-13

-Refer to Figure 12-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium
A)it will reduce its output to Q₀ and face a price of P₀.
B)it will continue to produce Q₁ but faces the higher price of P₂.
C)it will expand its output to Q₂ and face a price of P₂.
D)it will expand its output to Q₃ and face a price of P₁.

Question

Figure 12-13
 
-Refer to Figure 12-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business, in the long-run equilibrium
A)it will reduce its output to Q₀ and face a price of P₀. 
B)it will continue to produce Q₁ but faces the higher price of P₂. 
C)it will expand its output to Q₂ and face a price of P₂. 
D)it will expand its output to Q₃ and face a price of P₁.

Quizplus · Accepted Answer

In the long-run equilibrium, firms can enter or exit the market. In this case, since the firm is currently producing at a loss-minimizing quantity, it would likely exit the market in the long-run if it cannot make a profit. This would decrease industry supply and cause the market price to increase to P₂. If the firm chooses to stay in business, it would have to increase its output to Q₂ in order to be profitable at the higher price of P₂. Thus, the best choice is C.

Figure 12-13 -Refer to Figure 12-13.Suppose the Prevailing Price Is P₁ and Price