Consider the following cost curves for Firm X, a perfectly competitive firm. FIGURE 9- 3
-Refer to Figure 9- 3. In this industry, which one of the following is FALSE?
A) If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the market, Firm X will no longer be a price taker.
B) If the price were to fall below P2, firms would leave the industry.
C) At output Q2 and price P2, Firm X is maximizing its long- run profits.
D) If the price were to rise above P2, new firms would enter the industry.
E) Only one firm can reach the size of output Q2.

Question

Consider the following cost curves for Firm X, a perfectly competitive firm.  FIGURE 9- 3
-Refer to Figure 9- 3. In this industry, which one of the following is FALSE?
A) If the scale of Firm X at output Q2 and price P2 is large enough that Firm X has an appreciable share of the market, Firm X will no longer be a price taker. 
B) If the price were to fall below P2, firms would leave the industry. 
C) At output Q2 and price P2, Firm X is maximizing its long- run profits. 
D) If the price were to rise above P2, new firms would enter the industry. 
E) Only one firm can reach the size of output Q2.

Quizplus · Accepted Answer

The statement "Only one firm can reach the size of output Q2" is false. In a perfectly competitive market, there are no barriers to entry or exit, and any firm can expand or reduce its output as long as it is profitable to do so. Therefore, multiple firms can reach the level of output Q2 if it is profitable for them to do so.

Consider the Following Cost Curves for Firm X, a Perfectly