Question 26
Market StructuresWhich of the following statements does NOT describe a situation of perfect competition?
- A.The firm faces an infinitely elastic demand curve
- B.The firm makes no pure profit in the short run
- C.The price does not change with changes in the output level of the firm
- D.There is freedom of entry into, and exit out of the industry
- E.The firm can sell all it produces at the market price.
Show the answer and explanation
Answer: B (The firm makes no pure profit in the short run)
Explanation
A perfectly competitive firm can earn supernormal profit in the short run; it earns only normal profit in the long run.