In long-run perfectly competitive equilibrium, which of the following is false?Group of answer choicesThere is efficient, low-cost production at the minimum efficient scale.Economic surplus is maximised.Firms earn economic profit.Economies of scale are exhausted.
Question
In long-run perfectly competitive equilibrium, which of the following is false?Group of answer choicesThere is efficient, low-cost production at the minimum efficient scale.Economic surplus is maximised.Firms earn economic profit.Economies of scale are exhausted.
Solution
The statement that is false in a long-run perfectly competitive equilibrium is:
Firms earn economic profit.
Here's the step-by-step explanation:
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In a perfectly competitive market, firms are price takers and they have no control over the market price. They can sell as much as they want at the prevailing market price.
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In the long run, firms will enter or exit the market until economic profits are driven to zero. This happens because if firms are making an economic profit, new firms have an incentive to enter the market. This increases supply, which drives down the price and reduces the economic profit.
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Conversely, if firms are making an economic loss, some firms will exit the market. This decreases supply, which drives up the price and reduces the economic loss.
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Therefore, in the long-run equilibrium, firms in a perfectly competitive market earn zero economic profit.
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The other statements are true in a long-run perfectly competitive equilibrium. There is efficient, low-cost production at the minimum efficient scale. Economic surplus is maximised because the market is producing the quantity of goods that consumers value most. Economies of scale are exhausted, meaning that firms are producing at the lowest possible cost per unit.
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