The significance of the minimum point on the average variable cost curve is that

Question

The significance of the minimum point on the average variable cost curve is that it is the selling price of a good. it is the profit-maximizing level of output. if the firm produces one more unit, its average variable cost will be less than its marginal cost. it is the point of indifference between producing at a loss and shutting down. When an industry supply curve shifts rightward so that economic profit is erased. the entry of new firms and the expansion of existing firms stop all firms in the industry incur economic losses firms that charge a higher price exit the industry the quantity demanded decreases Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand increases. Which of the following statements is true in this case? Some resource suppliers to the industry will earn higher income. Existing firms will earn economic profits in the new long-run equilibrium. New firms will enter the industry in the short run. Existing firms will decrease output in the short run.

Explanation / Answer

Ans 1) C
When MC is rising AVC is below MC

Ans 2)A
In the long run if profits occur and there are no barriers to entry, new firms keep entering the market until all the profits are erased.

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