>> Business Economics
You are going to display what happens in the long run in perfectly competitive markets when firms are operating at a loss.
a) Draw a graph of a firm's MC, ATC, AVC, and MR curves that is operating at a loss, yet above its short-run shut-down price. Make sure that each curve has all the proper identifying characteristics (where the minimum is, increasing or decreasing, etc.)
b) On a separate graph, draw the supply and demand curve for the market in which this firm operates. Identify the equilibrium price.
c) Demonstrate the shift that will occur in the market in the long run if all firms in this market are operating at a loss. Identify the new equilibrium price after the shift.
d) On the graph from part a, draw the MR curve in the long run based on the price adjustment.