At long-run equilibrium in a perfectly competitive industry the typical firm is breaking even in an...

At long-run equilibrium in a perfectly competitive industry the typical firm is breaking even in an opportunity cost sense. T/F

Perfectly competitive markets include firms that have significant market power, with one typically being the price leader. T/F

In perfectly competitive markets, the individual firm’s demand curve is flat, while the market demand curve is typically sloping downward to the right. T/F

When a firm maximizes profits, its price is derived from where marginal revenue crosses marginal cost (extend the line up from where MR crosses MC to the Demand Curve; and then over to the Price axis (y-axis). Likewise, when you drop the line down (vertically) from the point where MR crosses MC to the Quantity axis (x-axis), this provides the point for quantity demanded.

Solutions

Expert Solution

(1) T

In perfect competition, in long run equilibrium, price = MC = ATC, so firms earn only normal profit which includes opportunity costs.

(2) F

In perfect competition, there are many small firms with zero market power, so they are price takers.

(3) T

Market demand is downward sloping and firm demand curve is horizontal at market price level.

(4) T

Profit is maximized when MR = MC and corresponding price is obtained from demand curve.

Rahul Sunny answered 1 year ago

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