Answer to Question #279251 in Microeconomics for Arlind

Question

(3)(a) Suppose that the market for a particular type of product purchased is perfectly competitive, what questions would you ask to determine the validity of the claim?

    (b) Explain, with appropriate graphical illustration(s), why firms in a perfectly competitive market would earn zero economic profits in the long run.

 (4) Consider a market with the following demand and supply curves:

                                                 Q (p) = 20 – 2P               

                                                 Q (p) = - 10 + 3P

(a)Find the equilibrium price and the equilibrium quantity transacted in this market.

Answer 1

A. The number of sellers in the market.

B.

Profits and losses are eliminated in the long run because an infinite number of enterprises produce infinitely divisible, homogeneous items. As a result, in the long run, the model of perfect competition assumes away all plausible drivers of profits.

C.

$Q d=Qs\\ = 20 – 2P =- 10 + 3P\\20+10=3p+2p\\30=5p\\p=6\\Q=20-12=8$