35. Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?

36. Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?

37. Assuming that the market for cigarettes is in perfect competition, what does allocative and productive

efficiency imply in this case? What does it not imply?

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8 • Problems 213

38. In the argument for why perfect competition is allocatively efficient, the price that people are willing to

pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can

you think of some social costs or issues that are not included in the marginal cost to the firm? Or some

social gains that are not included in what people pay for a good?

Problems

39. The AAA Aquarium Co. sells aquariums for $20 each. Fixed costs of production are $20. The total variable
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