Which of the following is not an assumption that we make in analyzing pure competition in the long run?
A)Firms are free to enter into or exit from a purely competitive market.
B)We may talk about a "representative" firm by assuming that competitive firms all have identical cost curves.
C)Firms may increase output by expanding their plant sizes.
D)Profits are not relevant to firm behavior anymore, because competitive firms earn zero profits in the long run.

Question

Quizplus · Accepted Answer

In the long run analysis of pure competition, it is not assumed that profits are irrelevant to firm behavior. Instead, it is assumed that firms earn normal profits due to free entry and exit in the market, which drives economic profits to zero. However, normal profit is still considered a cost of doing business and is relevant to firm behavior.

Which of the Following Is Not an Assumption That We