Consider the market for footballs. Many firms produce identical footballs with i

Question

Consider the market for footballs. Many firms produce identical footballs with identical costs. This graph represents one firm's average total cost (ATC), marginal revenue (MR), and marginal cost (MC) curves. Today, the market demand for and supply of footballs result in an equilibrium price of $9 per football.

http://courses.aplia.com/problemsetassets/micro/Lemke_Perfect_Competition_II/footballs.gif

1. How will the graph change over time as the industry moves to a long-run equilibrium?

A. The marginal cost curve will move up until price equals marginal cost.
B. The average total cost curve will shift up until price equals minimum average total cost.
C. The price will shift down until it is equal to the minimum of average total cost.
D. The graph will not change.

2. Suppose that the market for footballs starts in long-run equilibrium. Then, as a result of media coverage of the Soccer World Cup, children in the United States start playing more soccer and less football.

How will this firm's marginal cost curve change (if at all) in the short run?

A. Shift down
B. No change
C. Shift up

Explanation / Answer

5.1 : Positive profits (P=D=MR is above AC) 5.2 : The price will shift down (because new firms enter the market) until it is equal to the minimum of average total cost. 5.3 : Shift down (football and soccer are substitutes)

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