Question

1. Suppose a purely competitive firm was making a profit (or loss) in the short run....

1. Suppose a purely competitive firm was making a profit (or loss) in the short run. As they move into the long run, what happens? Explain thd process fully with graphs.

2. What is the purely competitive firm's short run supply curve? (Use a graph and explain what you are depicting).

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1)

Purely competitive firm can earn profits in short run but in long run, competitive firm can not earn abnormal profit.

Accruing of abnormal profits in short run leads to the entry more firms in search of profits and influx of new firms increases supply which drags down price and ultimately firms get only zero economic profit. Inefficient firms leave market.

Following is diagram:

In above diagram, increase in number of firms in market causes rise in supply and its shifts to right thereby leading to fall in price and increase in quantity supplied.

Now equilibrium is established where P = ATC=MC=MR=AR

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose a purely competitive firm was making a profit (or loss) in the short run. As...
Suppose a purely competitive firm was making a profit (or loss) in the short run. As they move into the long run, what happens? Explain the process fully with graphs.
What is the purely competitive firms’ short run supply curve? Use a Graph and explain what...
What is the purely competitive firms’ short run supply curve? Use a Graph and explain what you are depicting.
Assume that wheat is produced in a purely competitive market. In the SHORT RUN the demand...
Assume that wheat is produced in a purely competitive market. In the SHORT RUN the demand for wheat increases and wheat producers earn economic profits. In the LONG RUN how will this change in economic situation affect: (This is a horrible question so think of this as: what happens in the LR when firms are making SR positive economic profits in purely competitive industries) a. price of wheat (increase or decrease) b. economic profits (increase or decrease)
explain in detail how a perfectly competitive firm and market can begin with short-run economic profit...
explain in detail how a perfectly competitive firm and market can begin with short-run economic profit and then move to a position of long-run equilibrium.
19. Suppose a perfectly competitive firm and industry are in long-run equilibrium and the firm earns...
19. Suppose a perfectly competitive firm and industry are in long-run equilibrium and the firm earns an economic profit in the short run. Which of the following is likely to occur in the long run? a. There will be an increase in the amount of economic profit earned by the firm. b. The market supply curve will shift to the left, and the market price will increase. c. The market supply curve will shift to the right, and the market...
A firm in a perfectly competitive market is making profits. a. is this the short run...
A firm in a perfectly competitive market is making profits. a. is this the short run or the long run? b. what is likely to happen in the market and to this firm as time goes by?
In the short run, if a purely competitive firm is producing Q where $Price = $Marginal...
In the short run, if a purely competitive firm is producing Q where $Price = $Marginal Cost and simultaneously $Price = $Minimum Average Variable Cost, then explain why this firm is operating at output level known as the “Shutdown Point”.
Explain why in the long run, perfectly competitive firms will make no profit. What is the...
Explain why in the long run, perfectly competitive firms will make no profit. What is the long run equilibrium condition for a firm? ( first assume firm are making positive profits and then assume some firms are making negative profits... graphs).
1) On graph paper set up starting graphs for a competitive market and competitive firm in...
1) On graph paper set up starting graphs for a competitive market and competitive firm in which the competitive firm is making normal profits. include an average variable cost curve in the competitive firm's graph. a. What happens in the market graph if the price of a substitute good increases? b. How does the change in the market affect the firm's level of production and profits? c. What is likely to happen in the competitive market after the little firms...
If firms in a perfectly competitive industry are making zero economic profit, then a some of...
If firms in a perfectly competitive industry are making zero economic profit, then a some of those firms will leave the industry because firms cannot persistently go without making economic profit. b new firms will enter the industry, because the new entrants would be ensured of doing as well as in their best foregone alternative. c there is no incentive for either entry or exit. d some of the firms will temporarily shut down. e The supply curve shifts to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT