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Question
Macroeconomics
Posted 3 months ago

The cost and marginal revenue curves for a firm in a perfectly competitive market are shown in this graph.

At which price do other firms have no incentive to enter or exit this market?

Choose 1 answer:
(A) $35\$ 35
(B) $20\$ 20
(C) $214\$ 214
(D) $80\$ 80
(E) $130\$ 130
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Answer from Sia
Posted 3 months ago
Solution
a
In a perfectly competitive market, firms have no incentive to enter or exit the market when price equals the minimum of the Average Total Cost (ATC)
b
The point where the Marginal Cost (MC) curve intersects the Average Total Cost (ATC) curve represents the minimum point of the ATC
c
At this intersection, the price that corresponds to the minimum ATC is the price at which firms in the market will not make an economic profit or loss in the long run
d
The graph provided does not explicitly show the ATC curve, but we can infer that the price at which firms have no incentive to enter or exit is where MR intersects ATC at its minimum point
Answer
(A) $35
Key Concept
Long-Run Equilibrium in Perfect Competition
Explanation
In the long run, firms in a perfectly competitive market will enter or exit until they are producing at a price equal to the minimum of the Average Total Cost (ATC), where they earn zero economic profit.

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