In a perfectly competitive industry, the equilibrium price is $56 and the minimu

Question

In a perfectly competitive industry, the equilibrium price is $56 and the minimum average total cost of the industry's firms is $40. If this is a constant-cost industry, we can expect that in the long run, firms will _____ the market, shifting the industry's short-run supply curve _____. enter; outward until the minimum average total cost rises to $56. enter; outward until the new equilibrium price is $40. enter; inward until firms are making positive profit. exit; inward until firms are breaking even. In a perfectly competitive industry, the equilibrium price is $56 and the minimum average total cost of the industry's firms is $40. If this is a constant-cost industry, we can expect that in the long run, firms will _____ the market, shifting the industry's short-run supply curve _____. enter; outward until the minimum average total cost rises to $56. enter; outward until the new equilibrium price is $40. enter; inward until firms are making positive profit. exit; inward until firms are breaking even.

Explanation / Answer

Answer is Enter; Outward until the new equilibrium price is $40.

Explanation:

As the firm is earning super normal or economic profits, the new firms get tempted to enter the industry. With the contant cost and the supply get increased without much affecting the demand, there will be a downward pressure on price and equilibrium price will move downward till reaches the normal profits i.e. at point price equals to cost.

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