With identical firms, constant input prices, and all the other characteristics of a competitive market

Question

Quizplus · Accepted Answer

In a perfectly competitive market with identical firms and constant input prices, firms will continue to enter the market until the price falls to the minimum of the average cost curve. This is because in the long run, firms are able to adjust their inputs and expand or contract their production capacity, allowing them to achieve the minimum efficient scale of production. Therefore, the long-run equilibrium price will be the minimum of the average cost curve. A shift in demand will only lead to a temporary adjustment in price until all firms can fully adjust to the new demand level and the market returns to the long-run equilibrium. Therefore, B is not true and C is only true in the case where there are no shifts in demand. Thus, the correct answer is A.

With Identical Firms, Constant Input Prices, and All the Other