If the cost curves shown in the above figure apply to all firms in the industry and the initial pric...........

If the cost curves shown in the above figure apply to all firms in the industry and the initial price is P1, in the long run the price will be

greater than P1.

zero.

equal to P1.

less than P1

- In economics, in perfect competition, firms initially experience abnormal profits if the price, P1, is above average total costs.

- Option 1: Greater than P1

- This would imply a decrease in supply or an increase in demand. It's generally unlikely in competitive markets.

- Option 2: Zero

- Prices don't fall to zero because firms must cover at least variable costs.

- Option 3: Equal to P1

- In the long run, if P1 is above average costs, more firms enter, pushing prices down until economic profits are zero.

- Option 4: Less than P1

- ? Correct! In the long run, more firms enter the market, increasing supply and driving the price down to a normal profit level below P1.

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