Question

For a perfectly competitive industry in the long run, which is false?

A. Price equals average total cost.
B. Average total cost equals marginal cost.
C. Average fixed cost equals price.
D. Average total cost is at its minimum.
E. There is allocative efficiency.

**Not very sure! Thank you!! :)

Answer 1

would A be false? since price equals marginal cost, not ATC?

Answer 2

but also not sure because ATC equals mc? so if price=mc, and statement B is true, choice A would be true as well? :/

Answer 3

the only one that i'm like kinda sure is a true statement is choice E because perfectly competitive industry in the long run has allocative efficiency right? but the others confuse me :(

Answer 4

HMMMMMMM My heart tells me that D is false because I don't think cost is affected by competition. But I need to think about it a little more.

Answer 5

I agree with you on E

Answer 6

okie:) so it's D ?

and yay!

Answer 7

Wait, I'm not sure. I wasn't really paying attention in class when my teacher talked about this stuff
I don't even know if he talked about it at all

Answer 8

hahaa ahh okie:)

Answer 9

You said on a previous problem that if P < AVC, then the firm shuts down. So that implies that if P = AVC, then the firm is *barely* making it. Ie this is the lowest it can go before it actually shuts down.

Answer 10

this page says the same thing more or less

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=perfect%20competition,%20shutdown

Answer 11

ohh so it's not possible for ATC to be at its minimum then? because if it can't exist since it would be a shut down?

Answer 12

*because it

haha sorry about the stray "if" !

Answer 13

notice how I used AVC and not ATC

Answer 14

I'm not sure about ATC

Answer 15

ohh so wait, is D the false statement here? :/

Answer 16

this page helps with ATC though

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=average+total+cost

Answer 17

so E is out for sure, but in regards to the other ones, i know p=mc, but not too sure how mc correlates to atc or how afc correlates to p ?

Answer 18

Economics sure has a lot of acronyms. And my thinking has gotten me no closer to understanding this problem. So I will just wait for someone else to answer

Answer 19

haha okie :)

and heres what i got from that link
"Alternatively, because total cost is the sum of total variable cost and total fixed cost, average total cost can be derived by summing average variable cost and average fixed cost."

and "Average total cost, when combined with price..."

so price is the same as marginal cost, right? so does that mean ATC cannot be the same as price?

Answer 20

in a perfectly competitive, mc=mr= min atc for short run

Answer 21

okie :) but what about for long run? is it the same situation for the case of a perfectly competitive industry in the long run?

Answer 22

hint: one of the cost curves will slowly approach the horizontal axis

which cost curve am I referring to?

Answer 23

marginal revenue?

Answer 24

you're thinking of a monopoly

Answer 25

which was in a lesson we did a while back

Answer 26

aw darn.. okay, not sure then :/ do you mean like it's moving downwards at the x axis?

Answer 27

like the demand curve?

Answer 28

let's say we buy a machine for $1,000

then we produce 10 items

1000/10 = 100

--------------------------

now instead of 10 items, let's produce 100 items

1000/100 = 10

--------------------------

this time, we'll produce 1000 items

1000/1000 = 1

--------------------------

what cost curve am I creating?

Answer 29

supply?

Answer 30

oh wait... :/

Answer 31

total cost curve?

Answer 32

or average total cost curve?

Answer 33

no, ATC will not approach the horizontal axis

Answer 34

however, AFC (average fixed cost) will because you are taking that initial fixed cost of $1000 and you are spreading it out over the number of items you produce

Answer 35

ahh not sure :( sorry, I'm blanking out :(

Answer 36

ohhh AFC!!

Answer 37

so essentially AFC becomes so small that it's practically zero when you produce a vast quantity of product

Answer 38

is it a good idea to say P = AFC?

Answer 39

okay:) so no, it's not a good idea? so that means statement C, AFC=P, is the false one? :O

Answer 40

yeah because P = AFC means that the price also goes to 0

Answer 41

well thats what im think about also as the the correct answer

Answer 42

ahh yay!! thank you!! :)