If at its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $1.50 and its long- run average cost is $1.50, which of the following statements is true?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms earn zero economic profit in the long-run, as new firms enter the market driving down prices until price equals long-run average cost. Since the long-run average cost for this firm is $1.50 and its marginal revenue and long-run marginal cost are also $1.50, the firm is operating at its break-even point and earning zero economic profit. Therefore, choice A is true, and choices B, C, and D are incorrect.

If at Its Current Production Level, a Perfectly Competitive Firm's