Consider a perfectly competitive firm when its industry is in long-run equilibrium.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, all firms sell homogenous products, so no firm can differentiate its product. Furthermore, there are no barriers to entry in a perfectly competitive market, so the firm cannot have established barriers to entry. In the long-run equilibrium of a perfectly competitive market, firms earn only normal profits, meaning that they are earning revenues equal to their costs, including opportunity costs. As a result, they have no strong profit incentive to expand capacity beyond what is necessary to maintain their current level of profits. Finally, since the firm is a price taker in a perfectly competitive market, it has no ability to affect the price of its product.

Consider a Perfectly Competitive Firm When Its Industry Is in Long-Run