Quiz 9: Price Takers and the Competitive Process


Lowering the price of agriculture resources, such as, labor, machinery, and fertilizers, will increase the profit in the short run, but in the long run, competition will reduce the price up to the point where economic profit is eliminated. Hence, lower prices of resource will not increase much profit in the long-run in industry like agriculture which is very highly competitive in nature.

If the firms are making profits in the short-run in a price taker market, new firms will enter into market and will increase the supply, which leads to decline the market price till the profit is removed.

False. Cost minimizing (or profit maximizing) condition requires equality between firm's marginal revenue img equates its marginal cost img . Given efficient production, if price in the market is greater than (or equal to) the average total cost img , the operator will make positive economic (or normal) profit. Graph However, if the average total cost exceeds the price, the operator will incur economic loss. Graph Thus, whether an operator will make normal profit or not depends upon the position of average cost curve.

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