Figure 10.14
-Refer to Figure 10.14.If the diagram represents a typical firm in the market, what is likely to happen in the long run?
A)Some firms will exit the market causing the demand to increase for firms remaining in the market.
B)New firms will enter the market causing the demand to decrease for existing firms.
C)Inefficient firms will exit the market and new cost-efficient firms will enter the market.
D)Competition will be intensified as firms strive to make long-run profits.

Question

Figure 10.14 
-Refer to Figure 10.14.If the diagram represents a typical firm in the market, what is likely to happen in the long run?
A)Some firms will exit the market causing the demand to increase for firms remaining in the market. 
B)New firms will enter the market causing the demand to decrease for existing firms. 
C)Inefficient firms will exit the market and new cost-efficient firms will enter the market. 
D)Competition will be intensified as firms strive to make long-run profits.

Quizplus · Accepted Answer

In the long run, if a typical firm in a competitive market is making profits, new firms will be attracted to the market. This increases the supply of the product, which tends to lower the price. As the price decreases, the demand for the products of existing firms decreases because consumers have more options to choose from. This process continues until economic profits are zero, meaning that firms are making just enough profit to cover their opportunity costs.

Figure 10.14 -Refer to Figure 10.14.If the Diagram Represents a Typical Firm