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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.

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