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प्रश्न
At what level of price do the firms in a perfectly competitive market supply when free entry and exit is allowed in the market? How is the equilibrium quantity determined in such a market?
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उत्तर
In the long run, due to the free entry and exit of firms, all the firms earn zero economic profit or normal profit. They neither earn abnormal profits nor abnormal losses. Thus, the free entry and exit feature ensures that in the long run the equilibrium price will be equal to the minimum of average cost, irrespective of whether profits or losses are earned in the short run.
The equilibrium is determined by the intersection of consumers’ demand curve and the ‘P = min AC’ line. At equilibrium point E, quantity supplied by each firm is qe at the price (P).
संबंधित प्रश्न
Determination of equilibrium price under perfect competition.
Explain the chain effects, if the prevailing market price is below the equilibrium price.
Giving reason, state whether the following statement is true or false.
When equilibrium price of a good is less than its market price, there will be competition among the sellers.
X and Y are complementary goods. The price of Y falls. Explain the chain of effects of this change in the market of X.
Explain the chain of an effect of excess demand of a good on it equilibrium price.
Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price.
Distinguish between Gross domestic product at a market price and Gross domestic product at factor cost.
Define or Explain the General equilibrium.
If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?
Define or explain the following concept:
Equilibrium price
State whether the following statement is TRUE and FALSE.
Under perfect competition, price is determined by equilibrium of demand and supply.
Fill in the blank with appropriate alternative given below
The price at which demand and supply equate to each other is called _______ price.
State whether the following statement is true or false. Give reasons for your answer :
When the equilibrium price is greater than the market price there will be excess supply in the market.
Answer the following question:
The market for a good is in equilibrium. How would an increase in an input price affect the equilibrium price and equilibrium quantity, keeping other factors constant? Explain using a diagram.
