Now suppose the patent expires and other firms are free to use the technology. Which of the following statements are true about what happens in the long run? A. The market price falls to P2. B. All firms' average-total-cost curves decline to ATC2. C. The market price stays at P1. D. All firms make positive profits.

Question

Business

Barron

24 October, 00:39

Now suppose the patent expires and other firms are free to use the technology. Which of the following statements are true about what happens in the long run? A. The market price falls to P2. B. All firms' average-total-cost curves decline to ATC2. C. The market price stays at P1. D. All firms make positive profits.

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Greta Harding · Answer 1

B. All firms' average-total-cost curves decline to ATC2.

C. The market price stays at P1.

Explanation:

The firm's price equals the minimum of average total cost only in the long run. In the short run, the price may be greater than average total cost, in which case the firm is making profits, or price may be less than average total cost, in which case the firm is making losses. But the situation is different in the long run.

When the average total cost is increasing, the marginal cost is above average total cost. It follows that, when the average total cost is at its minimum, marginal cost is equal to average total cost. Also, when the average variable cost is at its minimum, marginal cost equals the average variable cost.