A. In long-run equilibrium, every firm in a perfectly competitive industry earns

Question

A.


In long-run equilibrium, every firm in a perfectly competitive industry earns an economic profit.



B.


Pure competition exists in a market when firms are price makers as opposed to price takers.



C.


A natural monopoly results when the profit-maximizing output level occurs at a point where long-run average costs are decreasing.



D.


Downward-sloping industry demand curves characterize monopoly markets; horizontal demand curves characterize perfectly competitive markets.



E.


A decrease in the price elasticity of demand would follow an increase in monopoly power.

Explanation / Answer

The answer is D.

When the demand curve is downward sloping, it means that when the firm changes its quantity output produced, price changes along with it. This shows that the PRICE is dependent on the amount of QUANTITY that the monopolists produce. In other words, these monopolists have the power to change prices.

Horizontal demand curves shows that no matter how much quantity the firms produce, the price will always be constant. This is very true in the case of perfectly competitve industry whereby firms have no market power and are price takers!

Cheers!

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