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Author Question: Why is the demand for a perfectly competitive firm's good perfectly elastic even though the market ... (Read 158 times)

kfurse

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on: Jun 29, 2018
Why is the demand for a perfectly competitive firm's good perfectly elastic even though the market demand is not?
 
  What will be an ideal response?

Question 2

Economies of scale refer to the range of output over which
 
  A) marginal cost exceeds average cost.
  B) the long-run average cost falls as output increases.
  C) the marginal product of labor diminishes.
  D) the long-run average cost is less than the short-run average total cost.


ambernicolefink

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Each firm takes the market price as given. Because each firm's good can be perfectly substituted with any other firm's product, consumers will only pay the market price. Hence, any deviation above the market price causes the firm's sales to plunge to zero and any deviation below causes the firm's sales to soar to the entire amount sold in the market.

Answer to Question 2

B


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