Consider a perfectly competitive market depicted by the two figures below: (on the left) the industry supply and demand and (on the right) the marginal cost (MC), average total cost (ATC), and the marginal revenue (MR) for an individual firm in the market. Industry Price per unit S Representative firm MC ATC d = MR 9 Based on the figures above, firms that are operating in this market make continues, economic profits, and as long as this a. positive; the industry supply curve will shift to the left b. zero; new firms will not enter the market and existing firms will not leave either c. positive; new firms will enter the market and existing firms will not leave O d. negative; new firms will not enter the market and existing firms will leave

Consider a perfectly competitive market depicted by the two figures below: (on the left) the industry supply and demand and (on the right) the marginal cost (MC), average total cost (ATC), and the marginal revenue (MR) for an individual firm in the market. Industry Price per unit S Representative firm MC ATC d = MR 9 Based on the figures above, firms that are operating in this market make continues, economic profits, and as long as this a. positive; the industry supply curve will shift to the left b. zero; new firms will not enter the market and existing firms will not leave either c. positive; new firms will enter the market and existing firms will not leave O d. negative; new firms will not enter the market and existing firms will leave

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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One way to increase profits in your business is to find a way to reduce your costs. Use the average cost and marginal cost curves presented in class to represent a firm that finds a way to reduce its costs. Assume the firm operates in a perfectly competitive industry, where the typical firm has no market power and free entry and exit eliminate economic profits. Use your diagram to show the economic profit the firm earns after it reduces its costs, but also use your diagram to show how the firm will adjust its price and quantity as other firms enter the industry. Complete your analysis by explaining why the price a firm receives for its product will tend to bear a relationship to its cost structure, even if competition is not perfect.
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