Question

(right). Assume that all firms in this market, including the potentlal entrants, have identical cost curves. Initially, the market Is in equilibrlum at point A. Cost Price MC АТC 6 51 A 4 3 2 1 10 12 Quantity Quantity 8 2 4 6 134) Refer to the figure above. Suppose that the market has reached the long-run equilibrium. Then due to news of the product's defects and recall, the demand falls by 4 units at each price. At the new equlibrlum, each firm in the market earns 134) and there will be A) negative economic profit; exit of existing firms B) zero accounting profit: both entry and exit of firms C) zero economic profit: nelther entry nor exit of firms D) positive economic profit; entries of new firms
Please include an explanation of the answer. Thank you.

Answer 1

134)C)Zero economic profit; neither entry nor exit of firms.

If price =ATC ,the firm is earning zero economic profit.The point where MC intersects ATC,is the point of zero economic profit.If the price is exactly at the zero profit point as we see in the figure, the firm is making zero economic profit.So new firms will not enter the industry as profits will not attract them and old firms will not leave the industry.If a firm has Zero economic profit it will have positive accounting profit.