Figure 14-12
-Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects
A)perfectly inelastic long-run market supply.
B)perfectly elastic long-run market supply.
C)the entry of firms into the industry when some resources used in production are available only in limited quantities.
D)the fact that zero profits cannot be sustained in the long run.

Question

Figure 14-12  
-Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects
A)perfectly inelastic long-run market supply. 
B)perfectly elastic long-run market supply. 
C)the entry of firms into the industry when some resources used in production are available only in limited quantities. 
D)the fact that zero profits cannot be sustained in the long run.

Quizplus · Accepted Answer

In panel (a), the long-run equilibrium occurs where the firm's marginal cost (MC) intersects with the market price (P) at point E. At this point, the firm earns zero economic profits because its average total cost (ATC) is equal to the market price. This indicates that the market is perfectly competitive in the long run, with all firms earning normal profits.

In panel (b), the flat long-run market supply curve indicates that the market is perfectly elastic, meaning that any increase in demand will be met with an infinite amount of supply at the same price. This only occurs when there are no barriers to entry or exit in the market, and firms can freely enter or exit as they please. Therefore, panel (b) most likely reflects a perfectly elastic long-run market supply.