Question

Assume that the market for corn is perfectly competitive. Currently, firms growing corn are generating losses. In the long run, we can expect

Answer 1

Assume that the market for corn is perfectly competitive. Currently, firms growing corn are generating losses. In the long run, we can expect "some firms to exit causing the market price of corn to rise.".

What is perfectly competitive market?

According to economic theory, perfect competition exists when all businesses sell the same goods, market share has no bearing on prices, businesses can enter or quit the market without any obstacles, consumers have perfect or complete information, and businesses are unable to set prices.

There are five characteristics that have to exist in order for a market to be considered perfectly competitive. The characteristics are -

1. homogenous items,
2. no entry or exit obstacles,
3. price taker sellers,
4. transparent products, and
5. no seller has any control over market prices.

The three key components of perfect competition are as follows:

• There are a lot of buyers and sellers in the market.
• These buyers and sellers are in competition with one another.
• The good being offered or purchased is uniform.
• Companies are free to enter or leave the market.

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