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Which one of the following statements about market structure is TRUE? A Perfect competition is distinguished from all other market structures because of the assumption of no barriers to entry/exit from the industry
Which one of the following statements about market structure is TRUE?
A Perfect competition is distinguished from all other market structures because
of the assumption of no barriers to entry/exit from the industry.
B Firms under monopolistic competition face horizontal demand curves for their
products.
C A monopoly will find that its average revenue is always greater than its
average costs.
D Under perfect competition, in the long run, each firm will find that its
marginal cost is equal to its average cost of production.
Expert Solution
Option (a) is right . Because there is no barriers to entry and exit in perfect competitive market. Any firm can enter in market and leave any time.
Option (b) is wrong. The demand curve for the monopolistically competitive seller is more elastic (closer to horizontal) but not horizontal demand curve.
Option (c) is false because monopoly might have average cost greater thanor equal to its price , that will result in zero profit or loss.
Option (D) is also false beacuse If a perfectly competitive firm is in long-run equilibrium, then it is earning an economic profit of zero. If a perfectly competitive firm is in long-run equilibrium, then market price is equal to short-run marginal cost, short-run average total cost, long-run marginal cost, and long-run average total cost.
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