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Chapter 8: Q.36 (page 212)

Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?

Short Answer

Expert verified

Because an infinite number of businesses produce infinitely divided, homogeneous goods.

Step by step solution

01

Definition

Perfectly Competitive Markets:

It is considered that consumers have perfect information in a perfectly competitive market. To stay profitable in a completely competitive market, businesses must conform to specific market rules.

02

Explanation

Firms in an exceedingly perfectly competitive market can only make short-term profits or losses. Because an infinite number of enterprises produce infinitely-divisible, homogeneous items, profits and losses are eliminated within the future.

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Most popular questions from this chapter

Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?

Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.

The AAA Aquarium Co. sells aquariums for \(20 each. Fixed costs of production are \)20. The total variable costs are \(20 for one aquarium, \)25 for two units, \(35 for the three units, \)50 for four units, and $80 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost, and marginal cost for each output level (one to five units). What is the profit-maximizing quantity of output? On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves.

What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.
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