Figure 12-7 The graphs in Figure 12-7 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-7.Which of the following statements is true?

Question

Figure 12-7  The graphs in Figure 12-7 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-7.Which of the following statements is true?

Quizplus · Accepted Answer

The intersection of the industry demand and supply curves determines the current market price, which is $3 in this case. However, the firm's cost curve intersects with the demand curve at a quantity of 150 units, which means that the firm is currently making economic losses. In the long-run, new firms will enter the market (as indicated by the shift of the supply curve to the right), which will further increase competition and lower prices. Therefore, the price will fall in the long-run. Option A and D are incorrect because there is no indication in the graph that the firm will be able to increase prices in the future, nor that the market demand will increase. Option B is also incorrect because the decrease in demand would cause a shift in the demand curve, not a movement along the same curve.

Figure 12-7 the Graphs in Figure 12-7 Represent the Perfectly