Which of the following is/are NOT necessary condition(s) for long-run equilibriu
ID: 1200816 • Letter: W
Question
Which of the following is/are NOT necessary condition(s) for long-run equilibrium under perfect competition (select all that apply)?
No firm has an incentive to enter/exit the market.
Producer surplus for each firm equals zero.
At least some firms are selling at a price above marginal cost.
Each firm earns zero economic profit.
Each firm is maximizing profit.
A.No firm has an incentive to enter/exit the market.
B.Producer surplus for each firm equals zero.
C.At least some firms are selling at a price above marginal cost.
D.Each firm earns zero economic profit.
E.Each firm is maximizing profit.
Explanation / Answer
A No firm has an incentive to enter / exit the market is not a necessary condition. In long run under the perfect competition new firms can enter the industry to compete the existing firms. On the contrary, in the long run, the firms can contract their output level by reducing their capital equipment; they may allow a part of the existing capital equipment to wear out without replacement or sell out a part of the capital equipment. the firms can leave the industry in the long run. The long-run equilibrium then refers to the situation when free and full adjustment in the capital equipment as well as in the number of firms has been allowed to take place. It is therefore long-run average and marginal cost curve which are relevant for deciding about equilibrium output in the long run.
C. At least some firms are selling at a price above marginal cost is also not a necessary conditon because if some firm recieve marginal revenue above marginal cost then it will encourage new firms to take entry in industry and marginal revenue for other firms will decrease . so in long run perfect competition works on the condition that marginal revenue is equal to the marginal cost.
E each firm in long run recieve normal profits as there is free entry and exit of firms are allowed.
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