Which of the following statements about a perfectly competitive industry in long- run equilibrium is true?
A) Individual firms will have no incentive for technological improvement.
B) Each firm is producing at the minimum point on its LRAC curve.
C) Losses are tolerable because of high fixed costs.
D) In order to stay in the industry each firm is making an economic profit.
E) Firms must exhibit economies of scale.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a perfectly competitive industry, each firm will be producing at the minimum point on its long-run average cost (LRAC) curve. This means that they are producing at the most efficient level possible given their size and technology. Therefore, they have no incentive for further technological improvements, as they are already producing at the lowest possible cost. Additionally, firms cannot make economic profit, only normal profit, in the long-run equilibrium of a perfectly competitive industry. Losses may be tolerable due to high fixed costs, but they cannot persist in the long-run. Economies of scale may exist, but they are not a requirement for a perfectly competitive industry in long-run equilibrium.

Which of the Following Statements About a Perfectly Competitive Industry