Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is:
A) making an economic profit of 10.
B) an example of monopolistic competition.
C) going to go out of business in the long run.
D) a monopolist for a product with a relatively inelastic demand.
E) perfectly competitive in long-run equilibrium.

Question

Quizplus · Accepted Answer

The firm is earning zero economic profit (P=ATC) and is operating at the level of output where MR=MC. This indicates that the firm is in equilibrium in the short run. However, in the long run, if the market is perfectly competitive, firms will enter or exit until economic profit is driven to zero. Therefore, this firm is perfectly competitive in the long-run equilibrium.

Consider a Firm Operating with the Following: Price = 10;