Question

In: Economics

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?

  1. Must contain many producers, none of them having a large market share.
  2. 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.


Related Solutions

Explain why the firms in a perfectly competitive industry will earn zero economic profits in the...
Explain why the firms in a perfectly competitive industry will earn zero economic profits in the long run. I need the answer in 1 hour, please?
In the long-run equilibrium, all firms in a perfectly competitive market earn zero economic profit. Explain...
In the long-run equilibrium, all firms in a perfectly competitive market earn zero economic profit. Explain why this is true using intuition and graphs.
Determine whether the following statements are TRUE OR FALSE. Statement 1: Competitive firms can still earn...
Determine whether the following statements are TRUE OR FALSE. Statement 1: Competitive firms can still earn positive accounting profits in the long run. Statement 2: A higher total cost to a firm must imply a lower level of output. Determine whether the following statements about a perfectly competitive market are TRUE OR FALSE. Statement 3: Competitive firms can still earn positive accounting profits in the long run. Statement 4: A higher total cost to a firm must imply a lower...
Explain why the following statement is false: Competitive firms always earn zero profits in a long...
Explain why the following statement is false: Competitive firms always earn zero profits in a long run equilibrium because their marginal cost is equal to their marginal revenue at the optimal level of production.
Which statement is not true for a perfectly competitive market? * a-Firms are price takers b-Only...
Which statement is not true for a perfectly competitive market? * a-Firms are price takers b-Only one seller. c-Many buyers. d-No barriers to entry or exit. For a perfectly competitive firm, if total revenue is less than total cost but greater than total variable cost, that means: * a-Price is below average variable cost only b-Price is above average total cost only c-Price is below average total cost but above average variable cost d-Price is below both average total cost...
13. Firms in a perfectly competitive firm make 0 economic profit in the long run. True...
13. Firms in a perfectly competitive firm make 0 economic profit in the long run. True or False 14. A firm in a perfectly competitive market, finds that it's MR = MC occurs at Q = 100, at which point the market Price is $8. The firm's ATC = AFC+AVC = $6; Is the firm making a profit or loss at this point of production? a.Loss of $200 b.profit of $600 C.loss of $600 D. profit of $200 15. A...
7. Perfectly competitive firms are price takers because _____ a. firms earn high profits by charging...
7. Perfectly competitive firms are price takers because _____ a. firms earn high profits by charging different prices to different groups of consumers. b. one firm determines the market price and all other firms accept this price. c. firms must accept any price that consumers offer them. d. firms charge the price that government determines. e. each firm is too small compared to the market to be able to affect price.
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.
Which of the following statement is TRUE? a) A perfectly competitive firm is a price SETTER,...
Which of the following statement is TRUE? a) A perfectly competitive firm is a price SETTER, while a monopoly is a price TAKER b) A perfectly competitive firm faces market demand, while a monopoly faces a perfectly elastic demand c) Both monopoly and perfectly competitive firm faces market demand d) Both monopoly and perfectly competitive firm should produce at output level where marginal revenue = marginal cost
Explain why abnormal profits earned and losses incurred by perfectly competitive, profit-maximizing firms cannot be present...
Explain why abnormal profits earned and losses incurred by perfectly competitive, profit-maximizing firms cannot be present at long-run equilibrium. Explain why in the short run, the perfectly competitive, profit-maximizing firm always produces and supplies that output for which short-run marginal cost equals price. (Ignore the possibility that the maximum profit might be negative.)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT