A firm in a perfectly competitive industry

Question

Quizplus · Accepted Answer

In the short run, a firm in a perfectly competitive industry is constrained by its fixed inputs and must choose an output level that maximizes profit or minimizes losses. In the long run, all inputs are variable and the firm can adjust its production level based on market conditions, which may lead to a different output level than in the short run. However, in the long run, a firm in a perfectly competitive industry earns zero economic profit due to free entry and exit of firms, so option D is incorrect. Option A is also incorrect as new firms entering the industry can affect the market price and therefore the profits of existing firms. Option B is incorrect because there is no guarantee that a firm will always produce more output in the long run.

A Firm in a Perfectly Competitive Industry