Which of the following statements is TRUE regarding profit maximization in competitive markets?
I. When all firms pursue profits, none of them achieve profits.
II. When all firms pursue profits, only the most innovative will achieve profits.
III. Production is divided in such a way that total costs of production are minimized.
A) I only
B) II only
C) I and III only
D) II and III only

Question

Quizplus · Accepted Answer

In competitive markets, firms compete to increase their profits. However, due to the existence of perfect competition, any short-term profits gained by one firm will quickly attract new entrants to the market, driving down prices and reducing profits. Therefore, in the long run, firms in competitive markets only earn enough profit to cover their costs of production. This means that statement I is true.

Regarding statement II, innovation can help a firm gain a competitive advantage, but it is not the only factor that determines profitability. A firm can also achieve profits by producing goods or services at a lower cost than its competitors. Therefore, statement II is not necessarily true.

Statement III is true in competitive markets because firms try to minimize their costs of production in order to remain competitive. By producing at the lowest possible cost, firms can offer goods or services at lower prices than their competitors, thereby gaining a competitive advantage.

Which of the Following Statements Is TRUE Regarding Profit Maximization