Question

6. Answer both parts. (a) What are the short run and long run decisions by firm in a perfect competitive market if it is not making a profit? What conditions must be met when making these decisions? (b) Provide two key di↵erences between a competitive firm and a monopoly firm

Answer 1

a) In the short run, if the firm is not making a profit then it actually means that in the short run it will continue to do business if the prices greater than the average variable cost or else to shutdown.

in the long run if the firm is not making a profit then it will continue to do business if the price is equal to the average total cost is it will not because it I will feel that there is no point in making a loss and continue in the business

c) the key differences between perfectly competitive and Monopoly firm are

1) in a monopoly there is only one firm that represents the industry while in a perfectly competitive market there are huge number of firms

2) there are high barriers to entry in a Monopoly where in the the perfect competition there are no barriers to entry at all