Which of the following conditions is true of a perfectly competitive industry when it is in long- run equilibrium?
A) Accounting profits for all firms are zero.
B) Firms are exiting the industry.
C) Price equals minimum short- run average total cost for all firms.
D) Firms are entering the industry.
E) Firms are experiencing increasing returns to scale.

Question

Quizplus · Accepted Answer

In long-run equilibrium, firms are earning only normal profits, which means that price equals minimum short-run average total cost for all firms. If price were higher than the minimum short-run average total cost, firms would earn economic profits and new firms would enter the industry, causing an increase in supply and a decrease in price. If price were lower than the minimum short-run average total cost, some firms would exit the industry, causing a decrease in supply and an increase in price until it once again equals the minimum short-run average total cost. Therefore, C is the only condition that would be true in a perfectly competitive industry in long-run equilibrium.

Which of the Following Conditions Is True of a Perfectly