What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain
What will be an ideal response?
The assumptions that 1 ) market participants have perfect (complete) information and 2 ) there are no barriers to entry ensure that long-run profits will equal zero in a perfectly competitive market. So long as economic profits (losses) exist, firms will enter (leave) the market. Only when long-run profit equals zero will there be no more incentive for entry or exit. The assumption of perfect information ensures that each firm has access to the least-cost method of production. As such, one firm cannot have a cost advantage over other firms in the market.
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Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:
A. creates a surplus of rental housing. B. promotes a rapid increase in the future supply of housing. C. results in poor service and quality deterioration of many rental units. D. leads to a reduction in housing discrimination against minorities.
Two variables are said to be negatively correlated if their values
A. tend to move in opposite directions. B. only decrease but never increase. C. tend to move in the same direction. D. are always negative.
Economists use the term ceteris paribus to indicate that
a. supply and demand are in balance. b. other things are assumed to be constant. c. the analysis is true for the individual but not for the economy as a whole. d. their conclusions are based on normative economics rather than positive economic analysis.
If the price in an oligopoly market is the same as that of a monopoly with identical cost and demand conditions, then:
A. the average cost curve must be downward sloping. B. there may be collusion between firms. C. market demand must be unit elastic. D. This could never happen.