Question

1.) True or false?
A firm has an incentive to enter the market when prices rise in a competitive industry, say the market for books.

2.) Which of the following is a reason a coffee shop might exit from the market? Select all that apply.

Select all that apply:

• poor management

• input price decrease

• unproductive workers

• increased industry profits

3.) When all firms earn zero economic profits producing the output level where P=MR=MC and P=AC and there is no incentive to leave or join the market, the market is in __________.

Select the correct answer below:

1. short-run equilibrium

2. market equilibrium

3. long-run equilibrium

4 .industry equilibrium

Answer 1

1. True, the firm has an incentive to enter the market when prices rises above MC which actually raises the firm profit, but in long run, as many firms enter the market, they reduce everyone's profit and take the prices down equal to MC in long run.

2. Poor management - True, as it reduces the efficiency of firm to produce goods and eventually lowers the profit which in long run converts into loss.

Input price decrease - False, as it reduces the firm's cost which forces the firm to stay in the market.

Unproductive workers - True, as it reduces the quantity produced, in which condition they are not able to compensate expenses.

Increased industry profits - False, as everyone wants profit to be higher. No firm will the industry when profit rises.

3. Option C is correct as in perfect competitive market, in long run no firm is earning economic profit, they are just covering their cost and operating in the market.