Asked by Chris Mortell on May 13, 2024
Verified
In the long run under perfect competition
A) most firms make a profit.
B) most firms lose money.
C) firms operate at the minimum points of their average total cost curves.
D) most firms make economic profits,but not accounting profits.
Average Total Cost Curves
Graphs that show the average total cost of producing different quantities of output, typically U-shaped due to economies and diseconomies of scale.
Economic Profits
The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, representing the excess over the opportunity cost.
Perfect Competition
A market structure characterized by a complete lack of friction or impediments to the entry of new firms, where all sellers and buyers have access to the same information and no individual entity can influence the market price.
- Analyze the conditions under which firms in a perfectly competitive market operate including profit maximization, losses, and the long-run equilibrium.
Verified Answer
RM
Rawan MozayaMay 17, 2024
Final Answer :
C
Explanation :
Under perfect competition, there are no barriers to entry or exit, and all firms produce identical products. This means that if a firm tries to charge a higher price than the market equilibrium, consumers will switch to another firm, resulting in loss of sales for that firm. On the other hand, if a firm charges a lower price, it will not be able to cover its costs and will eventually exit the market. Therefore, in the long run, firms in perfect competition aim to operate at the minimum point of their average total cost (ATC) curve, which allows them to produce at the lowest cost possible and earn normal profits, where total revenue equals total cost. Thus, choice C is the correct answer.
Learning Objectives
- Analyze the conditions under which firms in a perfectly competitive market operate including profit maximization, losses, and the long-run equilibrium.