The car market is perfectly competitive with 1000 identical firms. Market demand: at prices (Rs lacs) 3.65, 5.20, 6.80, 8.40, 10.00, 11.60, 13.20 the quantities (thousands/year) are 500, 450, 400, 350, 300, 250, 200. Each firm's costs at outputs 200-500: MC rises and ATC is 12.80, 11.00, 10.43, 10.06, 10.00, 10.22, 11.00 (minimum 10.00 at output 400). In the long run
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Perfect competition has come up 115 times in 7 exams since 2006.
This question is on Long-run equilibrium, entry and exit, part of Perfect competition in Microeconomics.
Why free entry drives profit to zero in the long run, and what that implies for the number of firms and industry supply.
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Question from the DSE 2007 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.