Can a perfect competitor be X-inefficient in the long run? Explain why or why no

Question

Can a perfect competitor be X-inefficient in the long run? Explain why or why not.

A.No. The degree of competitiveness places a limit on firms’ laziness. Since perfect competition is the least competitive market structure, these firms will go out of business if they are inefficient.

B.Yes. A perfectly competitive firm will just earn lower profits as compared to efficient firms.

C.Yes. A perfectly competitive firm can translate profit into X-inefficiency.

D.No. The economic forces of a market would knock a perfectly competitive firm out of business if it operated less efficiently than the rest of the market. Only a monopolist can produce inefficiently and remain in the game.

Explanation / Answer

Answer: D

A perfectly competitive firm must be out of the business in the short-run if it is inefficient. The firm will not reach in the long-run in any way. Staying in the business but inefficient could only be possible in the long-run if it is monopolist, because there is no other competitor and the firm enjoys the full economic power.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.