The figure to the right represents the cost structure for a perfectly competitiv

Question

The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost (ATC) curve, average variable (AVC) curve, and marginal cost (MC) curve MC Suppose the market price is $10.00 per unit. Will firms enter or exit the industry in the long run? ATC the market in the If market price is $10.00, then firms will exit long run. AVC 210.00 What effect will firms exiting have on the market price? When firms exit, A, market supply will increase, increasing price O B. the marginal cost of production will increase, increasing price ( C. market demand will decrease, increasing price ( D. the average total cost of production will increase, increasing price 0 E, market supply will decrease, increasing price Quantity

Explanation / Answer

Answer

exit

Option E

The firm is making losses in the short run because the price is below average total cost and because of losses in long run some of the firm exit the industry which will shifts the supply curve to the left which will increase the price .

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