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$2.00 Microeconomics Question 2

  • From Economics: Microeconomics
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  • Due on Dec. 10, 2008
  • Asked on Dec 10, 2008 at 8:01:24PM
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suzette567
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Q:
Do firms earn accounting profit under perfect competition? Do firms earn economic profit? Explain.

 

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Do firms earn accounting profit under perfect competition? Do firms earn economic profit?
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  • Posted on Dec. 11, 2008 at 06:25:52AM
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shabiwabi
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A:
Preview: ... price will not change as a result. But the collective effect of such adjustments by all sellers will cause the total supply in the market to change significantly, so that the market price falls or rises. Theoretically, the process will go on until a market price is reached at which the total output that sellers wish to produce is equal to the total output that all buyers wish to purchase. This way of reaching a provisional equilibrium price is what the Scottish economist and philosopher Adam Smith described when he wrote of prices being determined by “the invisible hand” of the market.<br><br>If the provisional equilibrium price is high enough to allow the established sellers profits in excess of a normal interest return on investment, then added sellers will be drawn to enter the industry, and supply will incr ...
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