31.based on the figure above, which of the following statements is true about th
ID: 1120686 • Letter: 3
Question
31.based on the figure above, which of the following statements is true about this competitive industry in the long run?
a. the market supply curve will be S3 and all firms will operate at a plant size of ATC1.
b.the market supply curve will be S3 and only those firms operating with a very large plant size will earn an economic profit.
c.the market supply curve will be S1 and only those firms operating at plant size ATC2 will survive.
d.the market supply curve will be S2 and firms will be forced to operant with plant sizes of ATC3.
e. all firms will go out of business and the industry will cease to exist.
32.in the long run, if a perfectly competitive industry has some firms earning an economic profit, we can expect:
a.th economic profits of other firms to be negative.
b.the market supply curve to shift to the left, decreasing market price and increasing market output.
c.the marginal cost curve to shift down and less output to be produced by each firm in the industry.
d.fewer firms in the industry.
e.more firms in the industry.
(a) Harket (b) Firn LRMC 2 1 MC, ATC1 AT LRAC 0 P Quantity QuantityExplanation / Answer
Answer 31 - According to the given information, The market supply curve will be 'S1'. A competitive firm earns normal profit in the long run and works on minimum point of LRAC curve. Minimum point of LRAC curve is found on supply curve S1. Those firms working on ATC2 will survive in the long run. Supply curve 'S3' has under utilization of resource and supply curve 'S2' has over utilization of resource.
Option C is the correct answer.
Answer 32 - In the long run, if a perfectly competitive industry has some firms earning an economic profit then we can expect more firms in the industry. As new firms will enter into the market, economic profit will turn into normal profit. It means all firms will earn zero economic profit in the long run.
Option E is the correct answer.
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