Asked by Natalia Smart on Jun 08, 2024
Verified
The perfect competitor produces at peak efficiency in the long run,
A) because any profits in the short run would attract new firms to the market in the long run until profits are eliminated.
B) because any losses in the short run would force some existing firms to leave the market in the long run until losses are eliminated.
C) Both of the above choices are true.
Peak Efficiency
The optimal point of production or operation at which an entity is utilizing its resources most effectively, without waste.
Attract New Firms
Strategies or policies designed to encourage businesses to establish operations in a particular area.
- Examine the effects of firms entering and leaving on the long-term balance in perfectly competitive environments.
- Depict how market conditions influence the operational choices of firms in both the short term and long term.
Verified Answer
HM
Haile McDonaldJun 13, 2024
Final Answer :
C
Explanation :
In a perfectly competitive market, firms earn normal profits in the long run due to free entry and exit. If there are profits in the short run, new firms would be attracted to the market, increasing supply and driving down prices until all firms earn only normal profits. On the other hand, if there are losses in the short run, some firms would exit the market, reducing supply and driving up prices until all firms earn only normal profits. Therefore, in the long run, the perfectly competitive firm produces at peak efficiency, where its costs of production are minimized and it earns only normal profits.
Learning Objectives
- Examine the effects of firms entering and leaving on the long-term balance in perfectly competitive environments.
- Depict how market conditions influence the operational choices of firms in both the short term and long term.
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