Question

AVC мс Р умс LAT ATC SAVCP (m) 0 0 Refer to the graphs above of perfectly competitive firms. Which graph(s) depict situations in which market prices will fall in the future: O il and I because the firms in both graphs will immediately shutdown and some firms in the industry will exit causing the price to fall O I because firms are making economic profits, which will entice firms to enter the industry and subsequently cause the market price to fall O il and IV because the firm in graph ill will immediately shutdown and the firm in graph IV will shut down in the long run. Firms will see opportunity in O because firms are making economic profits, which will entice firms to enter the market and subsequently cause prices to fall

Answer 1

Ans. I because firms are making economic profits, which will entice firms to enter the industry and subsequently cause the market price to fall  

Since the graph, I depicts that market price P>ATC, where firms are making economic profits which attracts the more firms to enter the industry to compete with other firms and that cause the market price to fall and each firm will earn normal profit in the long run where P=ATC ( zero economic profit).