EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Question
Chapter 23, Problem 1FCT
To determine
In what way the graph showing receding survival rate of incumbents in the long run alter when all the firms keep on earning more than zero economic profit years on year.
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Suppose all firms in a perfectly competitive market structure are in long-runequilibrium. Then demand for the firms’ product increases. Initially, price andeconomic profits rise. Soon afterward, the government decides to tax most (but not all) of the economic profits, arguing that the firms in the industry did not earn the profits. Rather, the profits were simply the result of an increase in demand. What effect, if any, will the tax have on market adjustment?
The "balance" in microeconomics refers to:
Firm revenue = HH income
HH Income = Firm Profit
HH market power = firm market power
Firm costs = HH income
Firm profits = HH economic welfare
Suppose a firm is currently producing at an output level such that the market price is above the firm's average total cost of producing. Then the firm will earn positive economic profits.
Select one:
True
False
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- The elimination principle discussed in this chapter tells us what we can expect in the long run from perfectly competitive markets: zero (normal) profits across industries. If this were the case, and this fate were unavoidable, going into business would seem to be a fairly dismal choice, given that the end result of normal profits is known right out of the gate. Despite this, we constantly see entrepreneurs working hard to earn profits. Is this a waste of time, given what we know about the elimination principle? Is the fate of zero profit unavoidable?arrow_forwardIs it even better for perfectly competitive firms to produce output even though it is losing money? If so, when?arrow_forwardExplain why a firm might want to produce its good even after diminishing marginal returns have set in and marginal cost is on the rise. People often believe that large firms in an industry have cost advantages over small firms in the same industry. For example, they might think a big oil company has a cost advantage over a small oil company. For this to be true, what condition must exist? Explain your answer.arrow_forward
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