Question

MC 5 ATC Price and costs (cents) 3 N 0 8 16 24 32 40 48 56 64 Quantity (pages per hour) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. The current market price is 2 cents per page. With no change in demand and technology, in the long run, the price will remain unchanged. rise to 5 cents per page. rise to 4 cents per page. fall to 1 cent per page.

Answer 1

For a perfectely competitive market in the long-run,the equilibrium occurs at a point where P = MC and also P = ATC as in the long run, a perfectey competitive firm can only normal profits.

If P > ATC, the firm will be earning super normal profits. SO, in the long run new firms will enter the market attracted by the profits thereby bringing the market price doen. If P < ATC, the firm will be earning losses, so few firms will exit the market in the long run and prices will go up.

At P = 2 cents, P = MC = ATC. So, firms are earning normal profits and there is no incentive to enter or exit the market if demand and technology remain unchanges. Thus, in the long run, the price will remain unchanged.