Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100, we expect to see
A)Entry into this industry.
B)Exit from this industry.
C)No change in the number of firms in this industry.
D)Costs rise to absorb the profits earned by the firms in the industry.

Question

Refer to Figure 23.2 for a perfectly competitive firm.Given the current market price of $100, we expect to see
A)Entry into this industry. 
B)Exit from this industry. 
C)No change in the number of firms in this industry. 
D)Costs rise to absorb the profits earned by the firms in the industry.

Quizplus · Accepted Answer

At the current market price of $100, the firm is making a profit (as its marginal cost is below the price). This would attract new firms to enter the industry, driving down the market price until it reaches the minimum of the average cost curve. Therefore, we expect to see entry into the industry.