Chapter 60, Problem 4MCQ

To determine

The characteristic of perfectly competitive industry.

Answer to Problem 4MCQ

(b) Firms have fixed costs in the long run.

(e) Firms maximize profit at the output level at which P = MC

Explanation of Solution

In the long run, there is a constant cost industry in the perfect competition which leads to constant cost or fixed cost to the firm. Hence option (b) is correct.

In perfect competition, the firm maximizes its profit at P = MC because in case of PMC there will be no supply of goods as there is perfect information in the market so no one can exploit other. Hence, option (e) is also correct.

Firm’s marginal cost curve is the supply curve, hence option (a) is incorrect.

Long run market equilibrium is efficient because of no wastage of resources and minimum cost, hence option (c) is incorrect.

There is free entry and exit in the perfect competition, thus option (d) is incorrect.

Economics Concept Introduction

Introduction:

A perfectly competitive industry is characterized by

1. Large number of buyers and sellers.
2. Firms are free to enter and exit.
3. Firm’s profit is maximized at the level of output at which P = MC
4. Long run market equilibrium is efficient.
5. Firm incur fixed costs in long run due to the constant cost industry.