Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect
A)new firms to enter the market.
B)the market price to rise.
C)its profits to rise.
D)Both b and c are correct.

Question

Quizplus · Accepted Answer

When a firm is operating in the short run at a price above its average total cost of production, it is making economic profits. This will attract new firms to enter the market in the long run, which will increase competition and ultimately drive down prices. As a result, the firm's profits will decrease or even become losses in the long run. Therefore, the only correct answer is A).

Suppose a Firm Operates in the Short Run at a Price