Do firms in a perfectly contestable market earn positive economic profit in the long run? Explain
What will be an ideal response?
No, firms in perfectly contestable markets do not earn positive economic profit in the long run. The openness of the market means that firms are pushed to produce efficiently. In the long run, they end up acting like firms in perfect competition with price equal to average total cost.
You might also like to view...
Suppose the production function is Y = AK0.3N0.7. Suppose in 2000, K = 1000, N = 100, and Y = 199.5. In 2010, capital, labor, and output have doubled, so K = 2000, N = 200, and Y = 399
(a) By what percentage did productivity grow from 2000 to 2010? (b) If output had risen to 798 instead of 399, and capital and labor doubled, by what percentage would productivity have grown from 2000 to 2010?
Which is NOT an example of signaling high quality in a social setting
a. wearing a business suit on a job interview b. leaving a big tip for the waiter after a dinner date c. offering an expensive engagement ring to your bride d. Doing messy chores before a big date
The aggregate demand curve
a. is identical to the AE curve. b. shows the amounts of real output that will be demanded at various price levels. c. shows the amount of real output that will be demanded at various levels of income. d. shows the amount of income that will be earned at various price levels.
Using a model of imperfect competition, economist Daniel Trefler concluded that the North American Free Trade Agreement:
a. cost Canada more than 100,000 jobs that were never replaced. b. presented no real issue about job loss in Canada. c. caused Canada to lose 5% of jobs in manufacturing because Canadian tariffs had to be cut, but over time the trade agreement created higher productivity and more jobs to offset losses. d. created new jobs in Canada from day one, as firms sold across the border and undercut U.S. firms.