A necessary condition for an industry to be in long- run competitive equilibrium is:
A)marginal revenue is equal to SAC.
B)price is equal to SAFC.
C)price is equal to the efficient SAC of production.
D)each firm is producing its profit maximizing output.

Question

Quizplus · Accepted Answer

In long-run competitive equilibrium, price must be equal to the efficient SAC (short-run average cost) of production, because firms have had time to adjust their production processes and eliminate any excess costs. This ensures that firms are producing at the lowest possible cost while still earning a normal profit. Marginal revenue being equal to SAC (choice A) or price being equal to SAFC (choice B) are not necessary conditions for long-run competitive equilibrium. Each firm producing at its profit-maximizing output (choice D) is a characteristic of short-run equilibrium, and is not sufficient for long-run competitive equilibrium.

A Necessary Condition for an Industry to Be in Long-