Question

Please answer my questions:

True or False and Explain

5)In a perfectly competitive market, if price is above minimum average variable cost, then firms will enter until price is equal to minimum average variable cost.

6)A firm in a competitive industry is assumed to set their price to cover costs and a normal profit.

8)In a competitive market, a firm is said to shutdown when it is unable to pay its existing debts.

9)A monopolist can never earn excess profits over the long run.

10)In a monopolistically competitive market, if one firm finds a profitable niche in product space, the likely result is that firm will grow larger than its competitors and eventually become a monopoly.

11)Monopolies like the railroads in the 19^th century, can earn excess profits for decades but eventually an entrepreneur comes along who creates a better railroad to compete away the monopolist’s profits.

12)In long-run equilibrium in a perfectly competitive market, firms earn excess profits due to barriers to entry.

Answer 1

5.

False

Firms will enter, but up to the level that will make price equal to the average total cost.

6.

False

Firms are price takers and not price makers.

8.

False

Firms shut down when they are unable to pay their variable cost. But, it is not the existing debt as it also includes the fixed.

9.

False

Monopolist earns positive economic profit in the long run, because it is the single firm.

11.

False

An entrepreneur cannot enter the market as it involves very high investment to create railroad network. So, entrepreneur cannot join the industry.

12.

False

Firms earn zero economic profit in the long run, due to free entry and exit of the firms.