Use the figure below to answer the following questions.

Figure 12.4.3
-Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market

Question

Use the figure below to answer the following questions.
  
Figure 12.4.3
-Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market

Quizplus · Accepted Answer

In the long run, firms in a perfectly competitive market will enter or exit the market until economic profits are driven to zero. At this point, the firm will produce at the minimum of the average total cost curve (where MC=ATC). In this scenario, the minimum point of the AC curve is below the market price, indicating that firms are earning positive economic profits. As a result, more firms will enter the market, increasing supply and driving down the market price. This process will continue until firms are earning only normal profits, with no incentive for additional firms to enter. As the market supply increases, the market price decreases, resulting in a decrease in supply for the firm. Therefore, the correct answer is D, supply will decrease.

Use the Figure Below to Answer the Following Questions