"In the long run, a perfectly competitive firm's average total cost is always below the market clearing price." Agree or disagree? Why?
What will be an ideal response?
Disagree. In the long run, a perfectly competitive firm produces at an output rate at which the market clearing price equals short-run minimum average total cost and long-run minimum average total cost. If the firm's average total cost is below the market clearing price, its profits will lead to firm entry into the industry. As a result of firm entry, the market clearing price will decline. This process will continue until the market clearing price equals the firm's average total cost.
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If a typical firm in a perfectly competitive industry is incurring losses, then
A) some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms. B) some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms. C) some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms. D) all firms will continue to lose money.
When property rights are clearly defined, there is generally a
A) law that must be passed to ensure fairness. B) regulatory agency that handles externalities. C) common property problem. D) voluntary agreement that can be reached.
Conflicts can arise between divisions because
a. Coordination between divisions does not benefit all divisions equally b. managers of profit centers care too little about the effects of their decisions on other divisions c. managers are rewarded only for actions that increase their own divisional profit regardless of their effects on other divisions d. all of the above
Workers’ reluctance to take nominal pay cuts offers a feasible explanation of why the Phillips Curve relation breaks down when there is deflation.
a. true b. false