Asked by Michelle Nunez on Jul 28, 2024
Verified
In perfect competition,a change in fixed cost will:
A) cause a change in the price in the short run.
B) cause a change in output in the short run.
C) encourage entry or exit in the long run such that price will change enough to leave firms earning zero profits.
D) cause a change in variable cost.
Fixed Cost
Fixed cost refers to expenses that do not change regardless of the business's level of output or sales, such as rent or salaries.
- Gain insight into the connection between market prices, costs incurred during production, and the supply framework in a perfectly competitive setting.
Verified Answer
DC
David ChiquinAug 02, 2024
Final Answer :
C
Explanation :
In perfect competition, firms earn zero profit in the long run. Thus, a change in fixed cost will encourage entry or exit of firms in the long run, which will change the overall supply in the market. As a result, the market price will change enough to leave firms earning zero profits. A change in fixed cost will not directly affect output or variable cost in the short run.
Learning Objectives
- Gain insight into the connection between market prices, costs incurred during production, and the supply framework in a perfectly competitive setting.