/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q.35 Why will profits for firms in a ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 8: Q.35 (page 212)

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

Short Answer

Expert verified

In the long run, firms achieve a profit of zero. In the long term, if there are too many firms they'll receive negative profit until enough firms leave. If the firms experience positive profit, more firms will enter the market till everyone gets zero economic profit.

Step by step solution

01

Definition

Perfect Competitive Market: A perfectly competitive market is characterized by a large number of buyers and sellers dealing with the same items. These market participants have a perfect understanding of the market, which fosters competition. Because it has both productive and allocative efficiency, this market is efficient.
02

Explanation

In a fully competitive market, there are no barriers to entry, and all consumers have perfect information.
In the long run, firms achieve a profit of zero. In the long term, if there are too many firms they'll receive negative profit until enough firms leave. If the firms experience positive profit, more firms will enter the market till everyone gets zero economic profit.

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.

Over 30 million students worldwide already upgrade their learning with 91影视!

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

1. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of \(250. The marginal cost of producing computers is \)700 for the first computer, \(250 for the second, \)300 for the third, \(350 for the fourth, \)400 for the fifth, \(450 for the sixth, and \)500 for the seventh.

a. Create a table that shows the company鈥檚 output, total cost, marginal cost, average cost, variable cost, and average variable cost.

b. At what price is the zero-profit point? At what price is the shutdown point?

c. If the company sells the computers for \(500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

d. If the firm sells the computers for \)300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

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?

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.

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

In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.