Question

Sort the following characteristics by whether they describe competitive markets, firms that can perfectly price-discriminate, both, or neither. Items (4 items) (Drag and drop into the appropriate area below) result in some deadweight loss zero economic profit in the long run maximize total surplus eliminate consumer surplus Categories Competitive market Perfect price discrim. Both Neither Drag and drop here Drag and drop here Drag and drop here Drag and drop here

Answer 1

Competitive markets achieve zero economic profit in the long run and, along with perfect price discrimination, can maximize total surplus. Perfect price discrimination eliminates consumer surplus, and neither competitive markets nor perfect price discrimination results in deadweight loss.

Step-by-step explanation:

The question relates to the characteristics of different market structures and their impact on consumer surplus, deadweight loss, and economic profit. Sorting the characteristics provided, we identify the following associations:

• Zero economic profit in the long run: Competitive Market
• Maximize total surplus: Both
• Result in some deadweight loss: Neither
• Eliminate consumer surplus: Perfect Price Discrimination

Competitive markets are characterized by the presence of many firms, free entry and exit, and a zero economic profit equilibrium in the long run. Conversely, a firm that can perfectly price-discriminate can capture all consumer surplus, converting it into producer surplus and maximizing total surplus in the process, whereas competitive markets do not eliminate consumer surplus but also maximize total surplus in the long run. Deadweight loss is generally associated with markets that are not perfectly competitive or perfectly price-discriminating, often occurring in monopolistic or oligopolistic market structures where there are inefficiencies and not all potential trades that could benefit both consumers and producers occur.