Figure 9-18

-Refer to Figure 9-18.Given the current market conditions,in the long run,
A)new firms will enter the industry and market price will fall.
B)firms will exit the industry and market price will rise.
C)firms will neither enter nor exit because the market is in long-run equilibrium.
D)firms will maintain their current level of economic profit.

Question

Figure 9-18
 
-Refer to Figure 9-18.Given the current market conditions,in the long run,
A)new firms will enter the industry and market price will fall. 
B)firms will exit the industry and market price will rise. 
C)firms will neither enter nor exit because the market is in long-run equilibrium. 
D)firms will maintain their current level of economic profit.

Quizplus · Accepted Answer

According to the graph, the demand curve intersects the long-run average cost curve at a point where economic profit is zero. This indicates that the market is in long-run equilibrium. However, the market price is above the minimum point of the long-run average cost curve, which means that there is economic profit for firms in the short run. This will attract new firms to enter the industry, which will increase the supply and ultimately lead to a decrease in market price in the long run. Therefore, choice A is the best option.

Figure 9-18 -Refer to Figure 9-18.Given the Current Market Conditions,in the Long