When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a perfectly competitive industry, firms are earning a normal profit, which means that their economic profit is zero. In this equilibrium, the price is equal to the minimum of the average total cost curve, which is also the long-run average cost curve. This is because any firm that is earning a positive economic profit will attract new entrants to the industry, causing an increase in supply and a downward pressure on price. As a result, firms that were previously earning a positive economic profit will now only be able to earn a normal profit, which is the minimum point on the long-run average cost curve. Therefore, the answer is C, which states that the price becomes tangent to the long-run average cost curve in the long-run equilibrium.

When a Perfectly Competitive Industry Is in Long-Run Equilibrium, Firms