Refer to the accompanying figure to answer the following questions.

-If the price is $3,the firm is making
A) a loss and will exit the market.
B) a profit and will exit the market.
C) a loss and more firms will enter the market.
D) a profit and more firms will enter the market.
E) zero profits and the market is at long-run equilibrium.

Question

Refer to the accompanying figure to answer the following questions.
 
-If the price is $3,the firm is making
A) a loss and will exit the market. 
B) a profit and will exit the market. 
C) a loss and more firms will enter the market. 
D) a profit and more firms will enter the market. 
E) zero profits and the market is at long-run equilibrium.

Quizplus · Accepted Answer

At a price of $3, the firm is producing at the minimum point of its average total cost (ATC) curve, but its marginal cost (MC) is higher than the price. This means that the firm is making a loss. In the long-run, firms will exit the market if they continue to make losses, so the answer is A.

Refer to the Accompanying Figure to Answer the Following Questions