Mr. Smith is hired as a consultant to a firm evaluating entry into a perfectly competitive industry. Mr. Smith determined that at the projected level of output the price would be $100, the average variable cost would be $50, average total cost would be $80, and marginal cost would be $70. Mr. Smith's report will include the following remarks:

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Business

Adyson

11 May, 06:30

Mr. Smith is hired as a consultant to a firm evaluating entry into a perfectly competitive industry. Mr. Smith determined that at the projected level of output the price would be $100, the average variable cost would be $50, average total cost would be $80, and marginal cost would be $70. Mr. Smith's report will include the following remarks:

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Manuel Strong · Answer 1

P = 70, Ed = ∞, Firm = Price Taker, Free Entry & Exit

Homogeneous Product, No selling costs, Long Run Normal Profits

Explanation:

Perfect Competition is a market form with : many number of buyers & sellers, selling homogeneous goods at uniform prices, while firms & consumers having perfect information & no selling costs.

In this market : Price = Marginal Cost, as taken by all firms from the industry & so demand curve is horizontal parallel to x axis - denoting perfectly elastic demand i. e infinite sale at prevailing price.

As market's all sellers goods are homogeneous & all have perfect information about it, no selling costs are required. Free Entry & Exit in industry also imply that Industry's profits are confined to 'Normal Profits' (No Supernormal profit / abnormal loss) in long run.

So, Smith's report would include all the above mentioned remarks.