Question

In the long run, firms under perfect competition a. Have P = MC b. Have positive...

In the long run, firms under perfect competition

a. Have P = MC

b. Have positive economic profit.

c. Have MC > AC

d. Have P > AC

Homework Answers

Answer #1

Option A.

  • Perfectly competitive markets are those market's characterised by large number of buyers and sellers selling homogeneous products.
  • In long run these firms earn zero economic profits as they set the prices of their goods and services equal to the marginal cost of production.
  • This is because in short run, firms earn enough profits, which attracts new firms into the market. Due to increased competition the existing firms are forced to set P=MC in long run, thus earning zero ecomomic profits.
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