Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 8: Q.27 (page 212)

What price will a perfectly competitive firm end up charging in the long run? Why?

Short Answer

Expert verified

In a completely competitive market, a business will charge a price at which it makes no economic profit in the long term.

Step by step solution

01

Perfect Competition : 

Perfect competition is a market system with a high number of customers and sellers, buying and selling homogenous items, and having free entrance and exit.

02

Explanation : 

As entrance and existence are both free in the long term, companies cannot charge a price that would yield an abnormal profit because this will entice firms to enter the sector, putting downward pressure on the price by increasing supply. The market is in equilibrium when all enterprises generate zero economic profit or normal profit, as previously stated. As a result, enterprises will charge a price at which they all make a typical profit in the long term.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is a “price taker” firm?

What two lines on a cost curve diagram intersect at the shutdown point ?

Briefly explain the reason for the shape of a marginal revenue curve for a perfectly competitive firm.

Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

If new technology in a perfectly competitive market brings about a substantial reduction in costs of production, how will this affect the market?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free