Asked by Feisty Mochi on Jun 23, 2024
Verified
If all firms in a perfectly competitive market are operating where the MC = MR and there are no economic profits,then
A) the entire industry is about to stop producing since businesses will not operate without economic profits.
B) the industry is in equilibrium with no desire for exit or entry.
C) the industry is in serious disequilibrium where the inefficient producers are likely to go bankrupt.
D) the government is about to move in with subsidies.
MC = MR
This refers to the point where Marginal Cost equals Marginal Revenue, often used as a condition for profit maximization in economic theory.
Economic Profits
The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the total financial gain of a business beyond breaking even.
- Evaluate the repercussions of businesses entering and exiting on long-term equilibrium in markets characterized by perfect competition.
- Perceive the relevance of economic profits and losses in the attainment of equilibrium in both immediate and prolonged timeframes.
Verified Answer
AB
ariannis batlleJun 25, 2024
Final Answer :
B
Explanation :
In a perfectly competitive market, firms will continue to operate as long as they can cover their variable costs. When all firms are operating at MC=MR and earning zero economic profit, there is no incentive for firms to exit or for new firms to enter the market. Therefore, the industry is in equilibrium.
Learning Objectives
- Evaluate the repercussions of businesses entering and exiting on long-term equilibrium in markets characterized by perfect competition.
- Perceive the relevance of economic profits and losses in the attainment of equilibrium in both immediate and prolonged timeframes.