The diagram below shows the short- run cost curves for 3 perfectly competitive firms in the same industry.
FIGURE 9- 6
-Refer to Figure 9- 6.Given that Firms A,B and C are in the same industry,is this industry in long- run equilibrium?

Question

The diagram below shows the short- run cost curves for 3 perfectly competitive firms in the same industry.
  FIGURE 9- 6
-Refer to Figure 9- 6.Given that Firms A,B and C are in the same industry,is this industry in long- run equilibrium?

Quizplus · Accepted Answer

In long-run equilibrium, firms in a perfectly competitive market earn zero economic profits. However, in this diagram, all three firms are earning positive economic profits. Therefore, the industry is not in equilibrium. Choice A is incorrect because while all three firms are producing at their minimum average total cost, this does not necessarily mean the industry is in equilibrium. Choice B is incorrect because we cannot determine from the diagram whether Firm A is producing at a profit-maximizing level of output. Choice C is incorrect because we cannot determine from the diagram whether each of the three firms is operating at its minimum efficient scale. Choice E is incorrect because we cannot determine from the diagram whether P=MC=MR for each of the three firms, but even if they are, it does not necessarily mean the industry is in equilibrium.

The Diagram Below Shows the Short- Run Cost Curves for 3