If the short-run market supply curve and the demand curve intersect above the long-run market supply curve,firms will experience ________ economic profits,meaning the price is ________ the minimum point on the average total cost curve.
A) positive; above
B) positive; below
C) negative; above
D) negative; below
E) zero; above

Question

Quizplus · Accepted Answer

When the short-run market supply curve and the demand curve intersect above the long-run market supply curve, it indicates that there is a shortage in the market in the short run. As a result, firms are able to sell their products at a higher price than the minimum point on the average total cost curve in the short run, leading to positive economic profits.

However, in the long run, firms will be able to adjust their production levels and enter or exit the market in response to these profits. This will result in an increase in the market supply, which will drive down the price to the minimum point on the average total cost curve in the long run. At this point, economic profits will be zero.

If the Short-Run Market Supply Curve and the Demand Curve