Because industry X is characterized by perfect competition, every firm in the in
ID: 1217013 • Letter: B
Question
Because industry X is characterized by perfect competition, every firm in the industry is eaming zero economic profit. If the product price falls, no firm can survive. Do you agree or disagree? Discuss. This statement is OA. correct because firms would be earning negative economic profit. OB. incorrect because firms will produce in the short run as long as price is above the marginal cost of production. Oc. inco rect because new firms will enter the industry in the long run. increasing demand until the price rises to the lowest point on the long-run average cost curve. OD. incorrect because firms will exit the industry in the long run, reducing supply until the price rises to the lowest point on the long-run average cost curve OE. incorrect because firms will increase supply in the long run, producing more output to offiet the decrease in price.Explanation / Answer
Second question is not clear. Please mention which instruction i need to follow.
Answer for first question:
If price falls down, there will be increase in the market demand. But at the same time, so many of firms are forced to exit the market. Thus as a result, a decrease in the market supply. Demand being more than the supply, market should adjust until a higher price is settled.
Thus Option (D). Incorrect because firms will exit the industry in the long run reducing supply until the price rise rose to lowest point on the LAC.