The diagram below shows the short- run cost curves for 3 perfectly competitive firms in the same industry. FIGURE 9- 6
-Refer to Figure 9- 6. If Firms A, B and C are in the same industry, is this industry in long- run equilibrium?
A) Yes, because P = MC = MR for each of the 3 firms.
B) Yes, because each of the 3 firms is operating at its minimum efficient scale.
C) No, because if the industry were in equilibrium, all 3 firms would be earning zero economic profits.
D) No, because Firm A is not producing at a profit- maximizing level of output.
E) Yes, because all 3 firms are producing at their minimum average total cost.

Question

The diagram below shows the short- run cost curves for 3 perfectly competitive firms in the same industry.  FIGURE 9- 6
-Refer to Figure 9- 6. If Firms A, B and C are in the same industry, is this industry in long- run equilibrium?
A) Yes, because P = MC = MR for each of the 3 firms. 
B) Yes, because each of the 3 firms is operating at its minimum efficient scale. 
C) No, because if the industry were in equilibrium, all 3 firms would be earning zero economic profits. 
D) No, because Firm A is not producing at a profit- maximizing level of output. 
E) Yes, because all 3 firms are producing at their minimum average total cost.

Quizplus · Accepted Answer

In long-run equilibrium, firms in a perfectly competitive market earn zero economic profits. However, in this diagram, all three firms are earning positive economic profits as their average total cost is above the price level. Therefore, the industry is not in equilibrium.

The Diagram Below Shows the Short- Run Cost Curves for 3