Asked by Jason Yechan on May 05, 2024
Verified
In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.
Average Total Cost
The total cost of production (fixed and variable costs combined) divided by the total quantity of output produced.
Competitive Market
A market structure characterized by a large number of sellers and buyers, free entry and exit, and products that are similar enough to be considered substitutes, leading to price competition.
- Describe the relationship between market price, average total cost, and firm operations in both short and long-run scenarios.
- Learn the prerequisites for achieving a state of zero economic profit in the long-term context of perfectly competitive sectors.
Verified Answer
MP
morgan pelleyMay 08, 2024
Final Answer :
True
Explanation :
In a competitive market, firms enter and exit until economic profits are zero, which occurs when price equals the minimum of average total cost, ensuring that each firm covers its costs exactly, including a normal profit.
Learning Objectives
- Describe the relationship between market price, average total cost, and firm operations in both short and long-run scenarios.
- Learn the prerequisites for achieving a state of zero economic profit in the long-term context of perfectly competitive sectors.
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