If a perfectly competitive firm is producing where its MR=MC, but is operating to the left of the minimum point of its LRAC curve,
A) it can still be in long- run equilibrium as long as P = SRATC.
B) it cannot be optimizing its short- run behaviour.
C) it is in a long- run profit maximizing position.
D) it can reduce its average costs by building a larger plant.
E) its profits will decrease if it builds a larger plant.

Question

Quizplus · Accepted Answer

The firm can reduce its average costs by building a larger plant because it is operating to the left of the minimum point of its LRAC curve, indicating that it is not at the most efficient scale of production.

If a Perfectly Competitive Firm Is Producing Where Its MR=MC