Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?
A) Free entry to reduce short-run profits, or free exit to reduce short-run losses.
B) Economic profits are positive, but cannot be negative.
C) Marginal revenue is greater than marginal cost.
D) Average revenue is less than average cost.

Question

Quizplus · Accepted Answer

In the long-run competitive equilibrium, firms have the option to enter or exit the market. This means that if firms are making profits in the short-run, new firms will enter the market and increase competition, leading to a reduction in profits. Similarly, if firms are making losses in the short-run, some firms may exit the market, reducing competition and allowing the remaining firms to increase prices and make profits in the long-run. This process does not occur in the short-run equilibrium, where firms are unable to enter or exit the market, and hence can make positive or negative economic profits. Marginal revenue being greater than marginal cost is a characteristic of profit maximizing behavior, but it is not unique to the long-run competitive equilibrium. Average revenue being less than average cost is a characteristic of a situation in which firms are making losses, and is not unique to the long-run competitive equilibrium.

Which of the Following Is a Key Characteristic of the Long-Run