Why is the profitability of firms under perfect competition different when they have non-identical cost structures in comparison to identical cost structures?
What will be an ideal response?
When firms have non-identical cost structures, the pattern of entry into the industry is different than when they have identical cost structures. In the former case, it is the set of firms with the lowest average total cost curve that enters the market first and earns highest economic profits. The next set of firms that enters has a higher average total cost than the initial lot of market entrants. Eventually, a firm with an even higher average total cost curve enters the market and this firm earns zero economic profits. This firm is called the marginal entrant, as it is indifferent between entering the market and staying out of the market. The price in the market is equal to the marginal entrant's long-run average total cost because for any price below this price there is absolutely no incentive for the firm to enter. Because the price equals the long-run average total cost curve of the marginal entrant and not the minimum average total cost curve of the industry, the market supply curve is upward-sloping rather than horizontal. On the other hand, in case of a market where all firms have an identical cost structure, the long-run price equals the minimum average total cost of the industry, which is the same for all firms. Hence, the market supply curve in this case is horizontal and there are no economic profits in the long run. Because in the case of non-identical cost structures, firms face an upward-sloping market supply curve even in the long run, low-cost firms can make positive economic profits.
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Medical service by physicians
A) could be made a free good through universal health insurance. B) is a good for which the demand is completely inelastic. C) is a good for which there is no satisfactory substitute. D) would become a free good if physicians did not charge monetary fees. E) would cost some patients more in non-monetary terms than they now pay if physicians did not charge monetary fees.
The Securities and Exchange Commission of the U.S. government requires that mutual fund companies publish a long and detailed prospectus which covers an array of areas including the cost of owning the fund, the types of stocks the fund invests in,
the management fee, administrative fees and an assessment of the type of risk that holding the fund represents. This is clearly designed with the intent of mitigating the imperfect information problem. However, can you think of any reason why the value of these documents is likely to be quite marginal?
The producer can raise the level of profit by hiring more units of a resource if:
a. the marginal revenue product of the resource is equal to the marginal factor cost. b. the marginal factor cost becomes negative. c. the marginal revenue product of the resource is greater than the marginal factor cost. d. the marginal revenue product falls to zero. e. the marginal revenue product of the resource is less than the marginal factor cost.
Which of the following is true?
a. All types of environmental problems can be solved merely by the enforcement of individual property rights. b. Environmental regulation cannot improve environmental quality. c. Income levels exert little impact on the demand for environmental quality. d. Markets often result in outcomes that are inefficient when it is difficult to assign and enforce property rights.