Why do economic growth rates matter?
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Answer:
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The industry is purely competitive.
Explanation:
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Total revenue = product price x quantity demanded
for example, total revenue when quantity demanded is 2 is $ x 2 = $4
Marginal revenue is change in total revenue.
marginal revenue = total revenue - previous total revenue
e.g. marginal revenue when quantity demanded is 2 is = $4 - $2 = $2
the structure of the industry is a purely competitive market because price is equal to marginal revenue.
A perfect competition is characterised by many buyers and sellers of homogeneous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.
In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.
Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.
