Question

¬8) Assume a perfectly competitive industry. In the short run suppose that the market price for the good is $10. You also know that the minimum point on the average variable cost curve occurs at $6 per unit while the minimum point on the average total cost curve occurs at $11 per unit. From this information you know that in the short run, firms in this industry ____ and in the long run, holding everything else constant, there will be ____.

a) earn positive economic profit; entry of new firms into the industry

b) earn positive economic profit; exit of existing firms from the industry

c) earn negative economic profit; entry of new firms into the industry

d) earn negative economic profit; exit of existing firms from the industry

Answer 1

"D"

As the present price in the market is less than the average total cost in the market holding everything else constant earn a negative economic profit and they will exit In the long run from the industry. increasing the price and bringing other firms to the break even.