97

The graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information,

A. some firms will exit from this industry.
B. more buyers will come to the market.
C. new firms will be attracted into the industry.
D. buyers will leave the industry.

Question

97

The graphs are for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information,

A. some firms will exit from this industry.
B. more buyers will come to the market.
C.  new firms will be attracted into the industry.
D. buyers will leave the industry.

BlackTom AI · Accepted Answer

A firm's price above its average total cost means positive economic profit, so new firms will be attracted.

1) Relevant knowledge points and concepts
- In perfect competition firms are price takers; market price = firm’s marginal revenue (MR). 
- If P > ATC at the profit-maximizing output (where MR = MC), the firm earns positive economic profit in the short run. 
- Positive economic profit attracts entry; entry shifts industry supply right, lowering market price until economic profit is zero (P = min ATC) in the long run.

2) Step-by-step reasoning
- From the firm graph, the horizontal price line (P) intersects the MC curve at the firm’s chosen output. At that output the ATC curve lies below the price line (the dotted ATC intersection is below P), so P > ATC. 
- Therefore the firm makes a per-unit profit and total economic profit > 0. Market profits signal other firms to enter the industry because entry is free in a purely competitive market.

3) Calculations / intermediate steps (symbolic)
- Let P = market price, ATC(q*) = average total cost at the firm’s chosen output q*, with MR = P and MR = MC at q*.
- Profit per unit = P − ATC(q*). Given the graph, P − ATC(q*) > 0.
- Total economic profit = (P − ATC(q*)) × q* > 0.
- With entry, industry supply S increases → new equilibrium price P' falls until P' = min ATC (economic profits driven to zero).

4) Why the correct answer is correct
- Positive short-run profits (P > ATC) provide an incentive for other firms to enter. Entry increases industry output and drives price down to the break-even level in the long run. Thus new firms will be attracted.

5) Why other choices are incorrect
- A (some firms will exit): Exit occurs when firms earn losses (P < ATC), not profits. The graph shows profits, so firms exit is wrong. 
- B (more buyers will come): Buyer numbers respond to demand shifts, not directly to firms’ short-run profits; nothing on the graph indicates demand increases. 
- D (buyers will leave): There is no evidence of falling demand or higher price causing buyers to leave; price is a profit signal for firms, not an indicator that buyers will leave.

6) Conclusion
- The graphs show P > ATC and positive economic profit, so in the long run new firms will be attracted. This confirms answer C.

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类似问题

A perfectly competitive firm is said to be more efficient than a monopoly firm because

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According to the video, which market structure category is the car market best described as?

Which market structure has many firms, no market power, a homogenous/identical product and is very easy to enter?

Which market structure has -a small number of firms, each with high level of market power; -high barriers to entry, making it difficult for new firms to enter; and -mutual interdependence among firms?

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更多留学生实用工具

希望你的学习变得更简单

The threat of competitors’ entering a market is very high in industries that perform a(n) _ role and in industries where the primary product or service is _.