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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

Suppose that the market price increases to $6, as Table 8.14 shows. What would happen to the profit-maximizing output level?

What prevents a perfectly competitive firm from seeking higher profits by increasing the price that it charges?

Would independent trucking fit the characteristics of a perfectly competitive industry?

Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them “perfect.” How would you use these two concepts to analyze other market structures and label them “imperfect?”

Perfectly competitive firm Doggies Paradise Inc. sells winter coats for dogs. Dog coats sell for \(72 each. The fixed costs of production are \)100. The total variable costs are \(64 for one unit, \)84 for two units, \(114 for three units, \)184 for four units, and $270 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). On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves. What is the profit-maximizing quantity?
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