Question

Use the figure above to answer the following questions. It pictures three cost curves of a perfectly competitive producer of apples. It also pictures a variety of possible market prices, ranging from $1.10 per bushel to $4.90 per bushel. We assume that the firm wants to maximize profit. Let Point f= $4.90/bushel; point g= $4/bushel: point m= $2.40/bushel Figure 21.1 Price or Cost (dollars/bushel) MC AT 4.90 g 13 18 24 37 46 50 54 Quantity (thousands of bushels/year) 11) Consider a long-run competitive equilibrium. Let the demand for an industry's product rise. In response, we would expect which of the following? a. An immediate increase in price and higher production by all existing firms (as they equate their MC with the higher market price). b. The higher supply by so many firms turns their normal profits (zero accounting profit) into losses. c. The losses give firms an incentive to leave the industry, which lowers supply. d. The lower supply raises the market price, restores profit to normal (zero accounting profit), and stops the exodus of firms from the industry. e. All of the above.