When firms in a perfectly competitive market face the same costs, in the long run they must be operating:
A) Under diseconomis of scale
B) With small but positive levels of profit
C) At their efficient scale
D) All of the above are correct
I picked C?
A competitive market is in long-run equlibrium. If demand decreases, we can be certain that price will:
A) Fall in the short run. All firms will shut down, and some of them will exit the industry, Price will then rise.
B) Fall in the short run. No firms will shut sown, but some of them will exit the industry, Price will then rise.
C) Fall in the short run, All, some, or no firms will shut down, and some of them will ejxit the industry. Price will then rise.
D) Not fall in the short run becasue firms will exit to maintain the price.
I picked C?
you are right on both answers
For the first question, you selected option C, which is correct. When firms in a perfectly competitive market face the same costs, they must be operating at their efficient scale in the long run. In the long run, firms have the opportunity to adjust their inputs and production levels to minimize costs and achieve maximum efficiency.
For the second question, you also selected option C, which is correct. In a competitive market in long-run equilibrium, if demand decreases, we can expect that price will fall in the short run. As a result, all, some, or no firms may shut down, and some firms may exit the industry. This decrease in supply will eventually lead to a rise in price. Therefore, option C is the correct choice.
Well done on selecting the correct answers!