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Chapter 21: Problem 28

In the long run the perfect competitor will \- (LO5) a) make a profit b) break even c) take a loss

Short Answer

Expert verified
In the long run, a perfect competitor will \(\underline{\text{break even}}\) (Option b) as firms in perfect competition operate at the point where their economic profit is maximized, and the market price equals the minimum point of their long-run average cost curve. This results in no economic profit and no incentive for new firms to enter or for existing firms to exit the market.

Step by step solution

01

Definition of Perfect Competition

Perfect competition is a market structure where there are a large number of buyers and sellers. They sell identical products, have free and open entry and exit, and there is perfect information about the market condition. Additionally, individual firms are assumed to be price takers, which means they have no control over the market price.
02

Economic Profit

Economic profit is the difference between a firm's total revenue and all of its opportunity costs, including both explicit costs (actual expenses) and implicit costs (opportunity cost of the entrepreneur's resources). In the long run, a firm operates at a level where economic profit is maximized.
03

Long-run Equilibrium

In perfect competition, the long-run equilibrium is the point where a firm's economic profit is equal to zero. Equilibrium is reached when the market price equals the minimum point of the firm's long-run average cost curve. At this point, the firm maximizes its economic profit as they are producing at the lowest possible average cost.
04

Answer

Based on the concept of perfect competition and long-run equilibrium, we can deduce that in the long run, \(\underline{\text{a perfect competitor will break even}}\) (Option b). Breaking even means that the firm covers all its costs, leaving no economic profit, and there is no incentive for new firms to enter the market or for existing firms to exit the market.

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Most popular questions from this chapter

The marginal cost curve intersects the ATC curve at its (LO5) a) minimum point, which is the break-even point b) maximum point, which is the break-even point c) minimum point, which is the shut-down point d) maximum point, which is the shut-down point

Statement I: No firm will stay in business more than one year if it is losing large sums of money. Statement II: Many dot-coms have lost money in the short run. (LO3) a) Statement \(\mathrm{I}\) is true, and statement II is false. b) Statement II is true, and statement \(I\) is false. c) Both statements are true. d) Both statements are false.

The lowest point on a firm's short-run supply curve is at the (LO6) a) break-even point b) shut-down point c) most profitable output point d) lowest point on the marginal cost curve

At an output of \(5, \mathrm{MC}=\$ 49\) and ATC \(=\$ 52\). At an output of \(6, \mathrm{MC}=\$ 59\) and ATC \(=\$ 53\). At the breakeven point, ATC is (LO6) a) above \(\$ 53\) b) \(\$ 53\) c) between \(\$ 52\) and \(\$ 53\) d) \(\$ 52\) e) less than \(\$ 52\)

A firm will operate at that output at which \(M C=M R\) (LO1,6) a) only in the short run b) only in the long run c) in both the short run and the long run d) in neither the short run nor the long run
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