Question

Fill in the blanks: When existing firms in a competitive market have ________, it attracts new firms to enter the market.

	a.	total revenues exceeding total variable costs
	b.	average total costs that are below market price
	c.	average total costs exceeding average revenue
	d.	total revenues exceeding fixed costs

Answer 1

Option "B"i.e. average total costs that is below market price which is explained below

in the perfect competitive market in long run  If the increase in demand persists for a longer period, new firms might enter the industry and
existing firms establish new plants in response to the increased profitability of the industry. Consequently supplies will increase further and the long run equilibrium price will become equal to initial price but quantity will increases.
In short, in the long-run, the quantity changes will be greater and price changes will be less for a
given change in demand than in the market period or the short-run. This occurs because firms cannot
change their production during market period. They can adjust somewhat in short-run, but not completely because atleast one factor of production is fixed. Only in the long-run are all factors of production variable so the firms can completely adjust the supply according to demand.