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Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms...

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

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Answer #1

If there is a profit in the market then the price = MC = MR =AR will be higher than the Average total cost, the green area represents the profit in the market. Here the price is 200 and output will be 300.

IN the longrun, this condition will not be prevalent because more and more firms will come in and firm will be producing at the point at the point were the price and ATC will be same and firm will be producing at the point were the ATC is the lowest.

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