12.6 Chapter Figures

The figure above shows a firm's demand and average total cost curves.
-The situation in the figure above creates a barrier to entry for a second firm because i. a second firm that produced as many kilowatt-hours as the first firm would see the market price fall beneath its cost and would incur an economic loss.
Ii. a second firm that produced fewer kilowatt-hours than the first firm would have to charge a higher price and would not gain many customers.
Iii. the first firm's average total cost curve indicates it has been given a patent for the product.

Question

12.6 Chapter Figures
  
The figure above shows a firm's demand and average total cost curves.
-The situation in the figure above creates a barrier to entry for a second firm because i. a second firm that produced as many kilowatt-hours as the first firm would see the market price fall beneath its cost and would incur an economic loss.
Ii. a second firm that produced fewer kilowatt-hours than the first firm would have to charge a higher price and would not gain many customers.
Iii. the first firm's average total cost curve indicates it has been given a patent for the product.

Quizplus · Accepted Answer

Option i is true because the market price is below the ATC curve of the first firm, which means that a second firm producing the same amount will incur an economic loss. Option ii is also true because a second firm producing less electricity than the first firm would have to charge a higher price, which could deter customers. However, option iii is not true because there is no patent mentioned in the figure. Hence, the correct option is D, which is i and ii.

12.6 Chapter Figures The Figure Above Shows a Firm's Demand and Average Total