in competitive market the problem is that there is free entry and exit of the firms so in short run if there are abnormal profits this means that more and more firm will see this as an opportunity to earn thus will join the market or enter the market to take advantages of the profits, now as more and more firms enter the market the supply will be increased for the product thus the prices will start to fall and in long run the profits will get to normal condtion i.e zero
3. In a competitive market, we often say that profits are driven close to zero in...
QUESTION 7 Monopolistic competitive firms in the long run earn: positive economic profits. zero pure economic profits. negative economic profits. Positive, zero, or negative economic profits. QUESTION 8 Which of the following statements best describes firms under monopolistic competition? Profits will be positive in the long run. Price always equals average variable cost. In the long run, positive economic profit will be eliminated. Marginal revenue equals minimum average total cost in the short run. QUESTION 9 Which of the following...
2. In a perfectly competitive market, there are initially economic profits. Firm entry causes the market supply curve to shift rightwards, but the market does not reach its long run state. a. Draw two corresponding graphs, side-by-side, that allustrate this shift. One is the market supply and demand graph, and the other is the profit-maximizing production choice of a typical firm. Using your graph, explain b. How do price and marginal revenue change as firms enter c. How do MC...
16. If firms in a monopolistically competitive market are earning positive profits, then a. firms will likely be subject to regulation. b. barriers to entry will be strengthened. c. some firms will exit the market. d. new firms will enter the market. 17. As new firms enter a monopolistically competitive market, profits of existing firms a. rise, and product diversity in the market decreases. b. decline, and product diversity in the market increases. c. rise, and product diversity in the...
QUESTION 5 A monopolistically competitive firm will: maximize profits by producing where MR = MC. not likely earn an economic profit in the long run. shut down in the short run if price is less than average variable cost. all of the above. QUESTION 6 A monopolistic competitive firm is inefficient because the firm: earns positive economic profit in the long run. is producing at an output corresponding to the condition that marginal cost equals price. is not maximizing its...
3. Suppose the market for rolled oats is perfectly competitive and is in a long-run equilibrium. For the following. be sure to carefully label your graphs and use subscripts as we have done in class! You can give your answers for each part on the same graphs. a. Draw the graphs below that illustrate the market and a representative firm in the initial long-run equilibrium (use the subscript 1 to denote each curve). What profits is the representative firm earning?...
In the long run, a firm in a perfectly competitive market earns zero economic profit, so the opportunity in the short run to enjoy positive economic profits will cause existing firms to increase output and new firms to enter the market.
Please help with these questions Question 21 0.4 pts The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire? In the short run, firms will incur economic losses, but in the long run, firms will enter the market, bringing economic profits back up to zero In the short run, firms will experience economic profits, but in the long run, firms will enter the market,...
In theory, in the long run, monopolistically competitive firms earns zero profits. However, in reality there are some ways by which a firm can avoid losing profits. Which of the following is one such way? A) gradually increase the mark up on the goods produced B) lower the price of its products to expand its market share C) identify new markets and develop products precisely for those markets D) find a market niche and keep it as narrow as possible...
Adam Smith and the Natural Price Adam Smith explained how economic profits and losses in a competitive market cause the entry and exit of firms. Smith described what he called the natural price, or the long-run equilibrium price, in this passage from his 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations: When the price of any commodity is . . . sufficient to pay the rent of land, the wages of labour, and the...
Explain why, in a competitive market, firms only generate normal profits in the long run, whereas they can generate super normal profits in the short run?