Answered: Firms facing loss in short run may…

Business

Economics

Firms facing loss in short run may continue to produce in a competitive market structure.

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Perfect Competition

Section: Chapter Questions

Problem 14QP

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.

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Firms facing loss in short run may continue to produce in a competitive market structure.

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Many large corporations, such as General Motors and Apple, operate in markets that are not even close to perfectly competitive. But unlike the products these companies sell, shares of these firms’ common stock are bought and sold in what could be described as a perfectly competitive market. Based on the three conditions that make a market perfectly competitive, what characteristics of the purchase and sale of shares of stock of a large company like GM or Apple, are consistent with perfect competition?
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Assume perfect competition takes place in the market for hotel rooms. The the current market equilibrium price of a standard room is RM300 per night. a. Show that the current market balance is efficient, assuming that both the marginal cost borne by the seller and the marginal profit which the buyer feels reflects all the costs and benefits associated with production and use of hotel rooms. Draw a graph to illustrate you answer.
Is the following statement true? "A firm that operates in a perfectly competitive market will earn long run economic profit by process innovation".