Question

When firms are neither entering nor exiting a perfectly competitive market, a. total revenue must equal total cost for each firm. b. economic profits must be zero. c. price must equal the minimum of marginal cost for each firm. d. Both a and b are correct.

Answer 1

d. Both a and b are correct.

Step-by-step explanation:

• When a firm is entering a market with perfect competition the total revenue of the must be equal to the total costs of the firm production and thus the profits must be equal to zero.

• As a perfect competition is characterized by a large number of buyers, homogenous products, rational buyers, no externalities, no barriers to entry or exit. Thus the seller makes a normal profit on the level of return and investment and represents an opportunity cost.