1. **Problem Statement:** Given the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly competitive firm, analyze the firm's economic profit, market exit behavior, and price changes over time. 2. **Key Concepts:** - In perfect competition, the demand curve (D) equals the marginal revenue (MR) curve. - Economic profit is calculated as $\text{Profit} = (P - ATC) \times Q$, where $P$ is price, $ATC$ is average total cost, and $Q$ is quantity. - Firms earn zero economic profit in the long run due to free entry and exit. 3. **Step 1: Determine Economic Profit** - The price $P$ is given by the horizontal $D=MR$ line. - At the profit-maximizing quantity, $MC = MR$. - Compare $P$ to $ATC$ at this quantity. - Since the $ATC$ curve is above the $D=MR$ line at the quantity where $MC=MR$, $P < ATC$. - Therefore, $P - ATC < 0$, so the firm incurs a negative economic profit. 4. **Step 2: Long Run Market Exit** - Negative economic profit signals firms are losing money. - In the long run, firms will exit the market to avoid losses. 5. **Step 3: Price Change Over Time** - As firms exit, supply decreases. - Decreased supply causes the market price to rise. - The price will rise until it equals the minimum $ATC$, restoring zero economic profit. **Final Answers:** - a. The firm will earn a negative economic profit. - b. In the long run, firms will exit the market. - c. Over time, the price of the product will rise.