Elimination of Inefficient Firms and Economic Rents via Competition

Stability of Long-Run Equilibrium Pending Exogenous Shocks

A typical firm in a perfectly competitive market is producing 1,000 units of a good. At this level of output, the market price is $20, the firm's marginal cost is $20, and its average total cost is also $20. Furthermore, the firm's average total cost is at its lowest possible value. Based on this information, what can be concluded about the market?

Market Adjustment to Long-Run Equilibrium

Evaluating a Historical Climate Hypothesis

Imagine a perfectly competitive market where existing firms are currently earning profits greater than zero. Arrange the following events in the logical sequence that will lead this market to a new stable state where entry and exit cease.

Consider a perfectly competitive market where the current market price for a product is below the minimum average total cost for the typical firm. Which of the following outcomes is most likely to occur in the long run?

In a perfectly competitive market that has reached its long-run equilibrium, individual firms will have no incentive to continue operating because they are earning zero accounting profit.

For a perfectly competitive market, match each market condition for a typical firm with the corresponding long-run market adjustment.

Stability of Long-Run Competitive Equilibrium

An industry analyst observes the market for gourmet food trucks in a city and notes that several new trucks have entered the market over the past year, while very few have ceased operations. The analyst concludes that this market cannot be perfectly competitive, because the persistent entry of new firms indicates a lack of stability. Which of the following provides the best assessment of the analyst's conclusion?

When a perfectly competitive market is in a long-run stable state, with no firms entering or exiting, the typical firm earns zero __________ profit.