Question

In a market where competitive pressures do not allow one firm to charge higher prices than...

In a market where competitive pressures do not allow one firm to charge higher prices than other firms, the firm with a cost advantage will be able to generate more value than competitors - Discuss

Homework Answers

Answer #1

Yes it is true. The firm having better resources or techniques will earn more profits not only in the short run but in the long run also. Quite often the profit is due better entrepreneurs. As shown in fig 1 AC is less than price and thus firm earns economic profit not only in short run but in longrun also. As shown in fig 2 other firm will be just making accounting profits or its cost=price. This firm is called marginal firm. Question may arise will not other firms enter into market motivated by lower profits. The answer is they will have already made entry and marginal firm will be just breaking even

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm sells its product in a perfectly competitive market where other firms charge a price...
A firm sells its product in a perfectly competitive market where other firms charge a price of $70 per unit. The firm’s total costs are C(Q) = 60 + 14Q + 2Q2. a. How much output should the firm produce in the short run? units: b. What price should the firm charge in the short run? $ : c. What are the firm’s short-run profits? $ :
Which of the following is most likely produced in a monopolistically competitive market? a. Automobiles b....
Which of the following is most likely produced in a monopolistically competitive market? a. Automobiles b. Wheat c. Oil d. Fast food e. Soybeans Oligopolists are more sensitive to the pricing and output policies of their rivals when: a. there are many firms in the industry. b. all firms produce identical products. c. there are barriers to entry. d. there is freedom of entry and exit. e. their products are highly differentiated. It is harder to explain the behavior of...
A firm sells its product in a perfectly competitive market where other firms charge a price...
A firm sells its product in a perfectly competitive market where other firms charge a price of $100 per unit. The firm’s total costs are C(Q) = 50 + 12Q + 2Q2. a. How much output should the firm produce in the short run? _____ units b. What price should the firm charge in the short run? $ _____ c. What are the firm’s short-run profits? $______   d. What adjustments should be anticipated in the long run? a. No firms...
A firm sells its product in a perfectly competitive market where firms charge a price of...
A firm sells its product in a perfectly competitive market where firms charge a price of $80 per unit. The firm’s cost are: Total Costs: C(Q) = 40 – 8Q + 2Qsquare Marginal Costs: MC(Q) = – 8 + 4Q a) How much should the firm produce in the short run (to maximize profits)? b) What are the firm’s short run profits or losses? (Profits = Revenue – Total Costs) c) What changes can be anticipated in this industry in...
In a perfectly competitive market, all of the following are true EXCEPT: firms take prices as...
In a perfectly competitive market, all of the following are true EXCEPT: firms take prices as given. firms produce the quantity for which marginal cost equals price. firms can increase profits by charging a price higher than the market price. buyers take prices as given.
Which of the following is not a difference between monopolies and perfectly competitive markets? Select one:...
Which of the following is not a difference between monopolies and perfectly competitive markets? Select one: a. Monopolies can earn profits in the long run while perfectly competitive firms break even. b. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost. c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not. d. Monopolies face downward sloping demand curves while perfectly...
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices....
An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely? 1) The firm competes with others in the Bertrand fashion. 2) Other firms match price reductions but do not match price changes. 3) The firm competes with others in the Cournot fashion. 4) Other firms match price increases but do not match price reductions.
In a perfectly competitive market, how do firms set their price? a) Take the market price...
In a perfectly competitive market, how do firms set their price? a) Take the market price b) Sell for less than market price to undercut competitors c) Set MR = MC and solve d) Sell for more than market price to make more profit
Consider a market with only two firms. Demand on this market is given by D(p)= 90...
Consider a market with only two firms. Demand on this market is given by D(p)= 90 - 3p. Initially both firms have the same constant per-unit cost, specifically c1 = c2 = 20 . (a) What is the Nash equilibrium in this market if firms behave as Bertrand competitors? How much does each firm produce, what price do the firms charge, and what are their profits? (b) Now suppose that firm 1 acquires a new production technique that lowers its...
1. At what quantity does the profit-maximizing perfectly competitive firm produce? A. where total revenue minus...
1. At what quantity does the profit-maximizing perfectly competitive firm produce? A. where total revenue minus marginal revenue is at a maximum B. where marginal revenue minus marginal cost is at a maximum C. where total revenue minus total cost is at a minimum D. where marginal revenue minus marginal cost is at a maximum E. where marginal revenue is equal to marginal cost 2. What is the consequence of a firm selling a similar product in a competitive market?...