Costs and revenues C р 0 ATC Qe MC Most firms will shut down. D = AR = MR Output Given the situation in the market, what will happen in this market in the long run? Firms will enter the industry and the ATC curve will shift downwards due to economies of scale. Firms will leave the industry until supply of goods falls and zero economic profits are made. Firms will leave the industry and the industry will collapse.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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**Graph Explanation:**

The graph displays economic cost and revenue curves. The horizontal axis represents output, while the vertical axis shows costs and revenues. The key components of the graph are:

- **ATC (Average Total Cost)** curve: Represents the average total cost per unit of output.
- **MC (Marginal Cost)** curve: Illustrates the additional cost of producing one more unit of output.
- **D = AR = MR (Demand = Average Revenue = Marginal Revenue)** line: Indicates the market demand and revenue conditions. It is a horizontal line, denoting price 'p', and reflects perfect competition.

- **Point C**: The intersection of the MC and D = AR = MR lines.
- **Qe**: The equilibrium output level where firms maximize profit or minimize loss.

The shaded green area between the price line 'p' and the ATC curve above it shows economic losses, as the average total cost is greater than the price per unit.

**Question:**

Given the situation in the market, what will happen in this market in the long run?

- ◯ Firms will enter the industry and the ATC curve will shift downwards due to economies of scale.
- ◯ Firms will leave the industry until the supply of goods falls and zero economic profits are made.
- ● Most firms will shut down.
- ◯ Firms will leave the industry and the industry will collapse.
Transcribed Image Text:**Graph Explanation:** The graph displays economic cost and revenue curves. The horizontal axis represents output, while the vertical axis shows costs and revenues. The key components of the graph are: - **ATC (Average Total Cost)** curve: Represents the average total cost per unit of output. - **MC (Marginal Cost)** curve: Illustrates the additional cost of producing one more unit of output. - **D = AR = MR (Demand = Average Revenue = Marginal Revenue)** line: Indicates the market demand and revenue conditions. It is a horizontal line, denoting price 'p', and reflects perfect competition. - **Point C**: The intersection of the MC and D = AR = MR lines. - **Qe**: The equilibrium output level where firms maximize profit or minimize loss. The shaded green area between the price line 'p' and the ATC curve above it shows economic losses, as the average total cost is greater than the price per unit. **Question:** Given the situation in the market, what will happen in this market in the long run? - ◯ Firms will enter the industry and the ATC curve will shift downwards due to economies of scale. - ◯ Firms will leave the industry until the supply of goods falls and zero economic profits are made. - ● Most firms will shut down. - ◯ Firms will leave the industry and the industry will collapse.
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