ECON 1100 Lecture Notes - Lecture 17: Market Price, Longrun, Perfect Competition
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Refer to the above figure. If the price is $6 in the short run, what will happen in the long run?
a. |
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. |
b. |
Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. |
c. |
Because the price is below the firm's average variable costs, the firms will shut down. |
d. |
Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. |