If a Typical Firm in a Perfectly Competitive Industry Is

question 177

Multiple Choice

If a typical firm in a perfectly competitive industry is earning profits, then

• A)all firms will continue to earn profits.
• B)new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase.
• C)new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease.
• D)the number of firms in the industry will remain constant in the long run.

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Definitions:

Long-run Equilibrium

A state in market-based economies where all factors of production are fully utilized, leading to no further economic incentive for reallocation.

Minimized Average Total Cost

The point at which a firm achieves the lowest possible cost per unit of production by optimizing the scale of production.

Price

The amount of money required to purchase a good or service, often determined by supply and demand dynamics.

Long-run Equilibrium

A situation in competitive markets where all firms have adjusted to a state where there is no incentive to enter or exit the market, and economic profits are zero.