Asked by Samuella Agyemang on May 05, 2024
Verified
If the demand curve of a perfect competitor is tangent to (just touching) the firm's average total cost curve,
A) the firm is definitely in the short run.
B) the firm is probably in the short run.
C) the firm is definitely in the long run.
D) the firm is probably in the long run.
E) there is no way to determine whether the firm is in the short run or the long run.
Demand Curve
A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at those prices.
Average Total Cost Curve
A graphical representation showing how the total cost per unit of output changes with the level of output.
Short Run
A period in economics during which the quantities of at least one input or resource are fixed, limiting the ability of the economy or firm to adjust to changes in demand or supply.
- Differentiate between short-run and long-run outcomes in perfect competition.
Verified Answer
KP
Katerina PugachMay 09, 2024
Final Answer :
C
Explanation :
If the demand curve of a perfect competitor is tangent to the firm's average total cost curve, it means that the firm is earning zero economic profits. In the long run, firms in a perfectly competitive market will earn zero economic profits due to free entry and exit. Therefore, the firm is definitely in the long run.
Learning Objectives
- Differentiate between short-run and long-run outcomes in perfect competition.