A typical firm in a perfectly competitive constant-cost industry is operating with an economic loss in the short run. When the industry returns to long-run equilibrium, what will happen to the number of firms in the industry, the market price, and the typical firm’s quantity?

The answer options to this question would be the following:

A) Number of Firms Market Price Firm's Quantity:

Decrease Increase Increase

B) Number of Firms Market Price Firm's Quantity:

Decrease Decrease Increase

C) Number of Firms Market Price Firm's Quantity:

Decrease Increase Decrease

D) Number of Firms Market Price Firm's Quantity:

Increase Increase Decrease

E) Number of Firms Market Price Firm's Quantity:

Increase Decrease Decrease

The correct answer is A) Number of Firms Market Price Firm's Quantity:

Decrease Increase Increase .

Explanation:

In the long-term equilibrium of the company, if the level of production is optimal, price exceeds the cost of production the company is maximizing its total profits.

If price is less than production cost, but greater than variable production cost, the company is minimizing its total losses.

If the price is lower than the variable cost of production, the company minimizes its total losses by ceasing to operate.

In the long run, all production factors and all costs are variable. The company remains operating for the long term only if its Total Revenue is equal to or greater than its Total Cost. The best or optimal long-term production level for a highly competitive company is determined by the point where Price is equal to (CML).

If this level of production profits, more companies enter the highly competitive industry until all profits disappear.

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