1. Explain why perfectly competitive firms have to shut down in both short and long run.

Expert Solution

If a market has many firms then this is perfectly competitive. In this market, firms deal with homogeneous product and are price taker. Therefore, they can’t set price of the product but bound to accept the market price.

Short-run: In the short-run there are two kinds of cost – variable cost and fixed cost. Average variable cost is the total variable cost by a division of quantity. If the price is below the average variable cost (AVC) of a firm, the firm has to shut-down immediately; such scenario indicates that the production of each unit incurs a loss. Therefore, in order to stay in the market the firm has to cover the AVC in the short-run.

Long-run: In the long-run all factors of production become variable. Therefore, there would be no existence of fixed cost. Total cost of a firm is all variable; average total cost (ATC) is the division of total cost by a division of quantity. Market price of the product if lower than ATC the firm must shut-down. The situation indicates a loss, since the price doesn’t cover the ATC.

Rahul Sunny answered 2 years ago

Explain why a perfectly competitive firm will shut down in the short run if price is...

Explain why a perfectly competitive firm will shut down in the short run if price is lower than average variable cost but will continue to produce if price is below average total cost but above average variable cost. In long-run competitive equilibrium, P = MC = SRATC = LRATC. Because P = MR, we can write the preceding condition as P = MR = MC = SRATC = LRATC. The condition thus consists of four parts: (a) P = MR,...

In the short run, a perfectly competitive firm will shut down and produce nothing if: a....

In the short run, a perfectly competitive firm will shut down and produce nothing if: a. economic profits equal zero. b. total cost exceeds total revenue. c. total variable cost exceeds total revenue. d. the market price falls below the minimum average total cost.

Compare  the short run and long run for perfectly competitive firms. How do perfectly competitive firms...

Compare  the short run and long run for perfectly competitive firms. How do perfectly competitive firms adapt to market changes in the short run? What can perfectly competitive firms expect in the long run in terms of profits?

d. What are the shut-down rules for competitive firms in the short-run? Which one of them...

d. What are the shut-down rules for competitive firms in the short-run? Which one of them recommends temporary shut-down like re-organization and which recommends permanent exit. Why? e. State the profit-maximizing conditions (rules) under perfect competition in the long-run. f. What does perfect competition suggest about market efficiency? What about market fairness, equality, social justice, and all other social goals? a. State the profit-maximizing conditions (rules) under perfect competition in the short-run.

Why is there no economic profit for perfectly competitive firms in the long run? Why is...

Why is there no economic profit for perfectly competitive firms in the long run? Why is there no economic loss? Answer this question by using an example of a market or industry where perfectly competitive or close to perfectly competitive firms operate (or run their businesses) in close to 'no economic profit or no economic loss' situation.

Should the firm shut down in the short-run? Explain in detail why or why not.

7. In the short run, firms are expected to shut down if the price they receive...

7. In the short run, firms are expected to shut down if the price they receive is less than their AVC. In the long run, firms are expected to exit if the price they receive is less than their ATC. Explain why this difference occurs.

Q 1) explain the short-run break-even price as well as shut-down price for a competitive firm....

Q 1) explain the short-run break-even price as well as shut-down price for a competitive firm. (2 points) Q 2) Why is the level of output where marginal revenue equals marginal cost called as the profit-maximizing output under perfect competition? Show your proof. (2 points) Q 3) Describe the shape of short run supply curve in perfect competition. (2 points) Q 4) Do you agree that companies under perfect competition as well as monopoly are making profits in the long...

Using the definition and characteristics of perfectly competitive industries, explain why—in the long run—firms earn zero...

Using the definition and characteristics of perfectly competitive industries, explain why—in the long run—firms earn zero economic profits. Does this mean that competitive firms earn zero accounting profits? Your response should be at least 75–150 words (1–2 paragraphs) in length.

Explain why a perfectly competitive agricultural firm (a farm) is perfectly efficient in the long run...

Explain why a perfectly competitive agricultural firm (a farm) is perfectly efficient in the long run having achieved allocative efficiency,productive efficiency, and zero economic profit.

Question