At its current production level, a perfectly competitive firm's marginal revenue and long- run marginal cost are equal to $4 and its long- run average cost is $3, it should expect the market price of its product to fall.

Question

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If the market price is equal to the firm's long-run average cost ($3), the firm is just breaking even and not making any profit. However, if the market price falls below the firm's long-run average cost, it will start operating at a loss. Since the firm's marginal revenue is equal to $4 and its long-run marginal cost is also $4, any price below $4 would not be profitable for the firm. Therefore, if the market price falls below $4, the firm should expect a decrease in profits and a potentially unsustainable business model.

At Its Current Production Level, a Perfectly Competitive Firm's Marginal