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प्रश्न
Suppose the price at which the equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?
उत्तर
If the equilibrium price (Rs 8) in the above figure (of Q-5) is above the minimum of average cost, then it implies that the firm is earning supernormal profits. This situation will attract new firms in the market. As the new firms enter, the industry supply of output will also increase. New firms will continue to enter the industry that will lead the price to fall until it becomes equal to the minimum of the average cost. Thus, the supernormal profits are wiped out and all the firms earn normal profits.
When the free entry and exit of firms is allowed, the equilibrium is determined by the intersection of demand curve and the ‘P = min AC’ line.
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संबंधित प्रश्न
Determination of equilibrium price under perfect competition.
Giving reason, state whether the following statement is true or false.
When equilibrium price of a good is less than its market price, there will be competition among the sellers.
If the prevailing market price is above the equilibrium price, explain its chain of effects.
Explain the chain of effects of excess supply of a good on its equilibrium price
Explain the chain of an effect of excess demand of a good on it equilibrium price.
Distinguish between Gross domestic product at a market price and Gross domestic product at factor cost.
Write explanatory answer.
Define perfect competition and explain price determination under perfect competition.
Define or Explain the General equilibrium.
Define or explain the following concepts (Any THREE):
Effective demand
At what level of price do the firms in a perfectly competitive market supply when free entry and exit is allowed in the market? How is the equilibrium quantity determined in such a market?
Define or explain the following concept:
Price discrimination
Define or explain the following concept:
Equilibrium price
Fill in the blank with appropriate alternative given below
The price at which demand and supply equate to each other is called _______ price.
Suppose the demand and supply equations of a commodity X in a perfectly competitive market are given by :
Qd = 1700 – 2P
Qs = 1300 + 3P
Calculate the value of equilibrium price and equilibrium quantity of the commodity X.
The diagram given below shows the change in price of cotton shirts. Which one of the following causes the equilibrium price to move from P1 to P2?
