Question 4 options: New firms are likely to enter causing price to decrease. New
ID: 1165415 • Letter: Q
Question
Question 4 options:
New firms are likely to enter causing price to decrease.
New firms are likely to enter causing price to increase.
Current firms are likely to exit causing price to decrease.
Current firms are likely to exit causing price to increase.
There is no incentive for new firms to enter or existing firms to exit.
New firms are likely to enter causing price to decrease.
New firms are likely to enter causing price to increase.
Current firms are likely to exit causing price to decrease.
Current firms are likely to exit causing price to increase.
There is no incentive for new firms to enter or existing firms to exit.
MC ATCExplanation / Answer
In the above figure, the market price D is set below the ATC and the firm is likely to incur economic losses in the short run. Under perfect competetion, the firms in the market are likely to exit the market causing price to rise and reaching to a position where firms earn normal profits or zero profit that is when the market price equals the minimum point of the ATC.
Current firms are likely to exit causing price to increase.
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