Perfect Competition Characteristics Analysis
The question asks to identify the statement that is not true for a market structure characterized by perfect competition.
Evaluating Each Option:
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Option 1: $Price = LAC$
In the long run, perfect competition leads to firms earning only normal profits due to free entry and exit. Normal profit occurs when Price (P) equals Long-Run Average Cost (LAC). Thus, $P = LAC$ is true.
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Option 2: $Market demand curve for a commodity is horizontal to X-axis$
The market demand curve depicts the relationship between the total quantity demanded and price for the entire market. Like most demand curves, it slopes downwards. A horizontal demand curve represents perfect elasticity, which applies to the individual firm in perfect competition, not the market. Therefore, this statement is not true.
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Option 3: $Firms earn normal profits$
Free entry and exit in perfect competition ensure that supernormal profits attract new firms, driving down prices, while losses cause firms to exit, raising prices. This adjustment results in firms earning only normal profits (zero economic profit) in the long run. Thus, this statement is true.
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Option 4: $In the long run firms operate at the minimum point of average cost$
In long-run equilibrium under perfect competition, firms achieve productive efficiency by producing at the lowest possible average cost. This occurs where Marginal Cost (MC) equals LAC at its minimum point. Since firms also produce where $P = MC$ and $P = LAC$, they operate at the minimum point of LAC. Thus, this statement is true.
Conclusion
The statement that is not true for perfect competition is that the market demand curve is horizontal. The market demand curve slopes downwards, while the individual firm's demand curve is horizontal.
Correct Statement Identified: Option B
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
A market, in which there are a large number of firms, homogeneous product, infinite elasticity of demand for an individual firm and no control over price by firms, is termed as________.
If the two goods are substituted, then the indifference curve will be:
The government multiplier is given by (where c = MPC and t = tax rate)
