Answer if the following is a true statement and explain. Perfectly competitive firms cannot earn economic...

Answer if the following is a true statement and explain.

Perfectly competitive firms cannot earn economic profit in the long run.

Hint: The reasoning involves two of the other characteristics of PC that are NOT the two characteristics in the ANSWER to the previous question.

Previous question:

List the two characteristics of perfect competition that dictate that the individual firm is a price taker?

Must contain many producers, none of them having a large market share.
Consumers must regard the products of all producers as equal.

Solutions

Expert Solution

Answer : The answer is True.

In perfectly competitive market any firm can enter or exit from the market freely at any time. In perfectly competitive market many firms enter into the market in long-run. As a result, the market supply increase. Due to increase in market supply the price level fall continuously until it reaches to average total cost. As in long-run the price become equal to the average total cost for perfectly competitive firms, hence the perfectly competitive firms earn zero economic profit in long-run.

Rahul Sunny answered 1 year ago

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