The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
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Chapter12: The Partial Equilibrium Competitive Model
Section: Chapter Questions
Problem 12.9P
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The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right).
Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at
point A.
Price
Cost
MC
ATC
A
4
2
1
D
2 4 6 8 10 12 Quantity
Quantity
Refer to the figure above. Suppose that the market has reached the long-run equilibrium. Then, due to news of the product's defects
and recall, the demand falls by 4 units at each price. At the new equilibrium, each firm in the market earns
and there will be
a. zero economic profit; neither entry nor exit of firms
b. positive economic profit; entries of new firms
C. zero accounting profit; both entry and exit of firms
d. negative economic profit; exit of existing firms
Transcribed Image Text:The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right). Assume that all firms in this market, including the potential entrants, have identical cost curves. Initially, the market is in equilibrium at point A. Price Cost MC ATC A 4 2 1 D 2 4 6 8 10 12 Quantity Quantity Refer to the figure above. Suppose that the market has reached the long-run equilibrium. Then, due to news of the product's defects and recall, the demand falls by 4 units at each price. At the new equilibrium, each firm in the market earns and there will be a. zero economic profit; neither entry nor exit of firms b. positive economic profit; entries of new firms C. zero accounting profit; both entry and exit of firms d. negative economic profit; exit of existing firms
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