Below,the graph on the left shows the short-run cost curves for a firm in a perfectly competitive market,and the graph on the right shows the current market conditions in this industry.What do you expect to happen in the long-run?

Question

Quizplus · Accepted Answer

In the long-run, firms in a perfectly competitive market will enter or exit until the market reaches equilibrium where price equals minimum average total cost. According to the graph on the right, the current market price is above the minimum average total cost for the firm depicted by the short-run cost curves on the left. This means that in the long-run, more firms will enter the market, increasing market supply and driving down the price. As price decreases, the profit of the firm depicted will also decrease. Therefore, both B and C are correct, and the answer is D. A and E are not correct because there is no indication in the graphs that market supply will decrease or that all of the listed options will occur.

Below,the Graph on the Left Shows the Short-Run Cost Curves