The equilibrium price of a good or service in a competitive market is
A)Higher than it should be because profits are included in the price.
B)A reflection of the opportunity cost of producing the product.
C)Lower than it should be because bankruptcies are common in competitive markets.
D)Higher than the opportunity cost of producing the product.

Question

Quizplus · Accepted Answer

In a competitive market, firms will produce at the lowest point of their average total cost curve, which represents the opportunity cost of producing the product. The equilibrium price, in turn, reflects the point at which the quantity supplied equals the quantity demanded, based on the preferences and willingness to pay of consumers. Profit is not included in the price in the long run, as competition drives profits to zero. Bankruptcies are also not a determinant of the equilibrium price. Therefore, the equilibrium price in a competitive market is a reflection of the opportunity cost of producing the product.

The Equilibrium Price of a Good or Service in a Competitive