Consider the following cost curves for Firm X,a perfectly competitive firm.
FIGURE 9- 5
-Refer to Figure 9- 5.At output Q2 and price P2,which of the following is FALSE?

Question

Consider the following cost curves for Firm X,a perfectly competitive firm.
  FIGURE 9- 5
-Refer to Figure 9- 5.At output Q2 and price P2,which of the following is FALSE?

Quizplus · Accepted Answer

At output Q2 and price P2, the firm is earning only normal profits (zero economic profits), so there are no economic profits to attract new entrants. This means that the industry is in long-run equilibrium. However, there may still be unexploited internal economies of scale that allow the firm to further reduce its LRAC if it were to expand production. The fact that P = MC = SRATC = LRAC is consistent with the firm producing at its long-run profit-maximizing position and at its minimum efficient scale.

Consider the Following Cost Curves for Firm X,a Perfectly Competitive