The long-run equilibrium condition for perfect competition is:
A) P = AVC = MR = MC.
B) P = ATC = MR = MC.
C) Q = AVC = MR = MC.
D) Q = ATC = MR = MC.

Question

Quizplus · Accepted Answer

In perfect competition, in the long run, firms are able to adjust their inputs and outputs to minimize their costs and maximize their profits. This means that firms will produce where their marginal cost (MC) is equal to their marginal revenue (MR), since this is where they will maximize their profits. In the long run, firms have enough time to adjust both their variable inputs (e.g. labor) and their fixed inputs (e.g. capital), which means that they are able to produce at the lowest possible cost. This means that they will produce where their average total cost (ATC) is at a minimum. Finally, in perfect competition, no individual firm has any control over the market price, so they must accept the market price as given. Thus, in the long run, the market price will also equal the minimum average total cost (ATC), since if it were above this level, firms would be losing money and would leave the industry, and if it were below this level, new firms would enter the industry until the price was bid back up to this level. Therefore, in the long-run equilibrium for perfect competition, we have P = ATC = MR = MC.

The Long-Run Equilibrium Condition for Perfect Competition Is