Toothpicks are sold in a perfectly competitive market. The market price is currently $3 per box of one hundred toothpicks
At its current level of production, a representative firm in the toothpick industry is producing at a level of output such that long-run average cost is $3.25 per box of one hundred toothpicks. Given this information, is the toothpick industry in equilibrium? Explain.
No, the industry is not in equilibrium. In long-run equilibrium, price is equal to short-run marginal cost, short-run average cost, and long-run average cost. Firms in this industry are incurring losses and some will leave the industry. This will increase the price of toothpicks until firms are no longer incurring losses. In the long-run profits are driven to zero.
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A) becomes larger. B) becomes smaller. C) is unchanged. D) cannot be determined without more information.
Which of the following need not be true of a monopoly? a. The firm must be the only producer of the product
b. The product must have no close substitutes. c. There must be high barriers to entry. d. The firm must earn an economic profit in the short run.