Perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product. All firms are price takers. Market share has no influence on prices. Given the characteristics described above i. Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium. ii. Why would a firm choose to operate at a loss in the short run?
Perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product. All firms are price takers. Market share has no influence on prices. Given the characteristics described above i. Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium. ii. Why would a firm choose to operate at a loss in the short run?
Chapter26: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 5E
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Question
Perfect competition is a theoretical market structure in which the following
criteria are met: All firms sell an identical product. All firms are price takers.
Market share has no influence on prices. Given the characteristics described
above
i. Describe the factors that drive profits to zero in
markets in the long run. Explain carefully the incentives that drive the
market to a long run equilibrium.
ii. Why would a firm choose to operate at a loss in the short run?
iii. When do firms decide to shut down production in the short run?
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