In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at its lowest point.

Question

Quizplus · Accepted Answer

In perfect competition, firms produce at the minimum point of their long-run average cost curve (LRAC) to operate efficiently in the long-run. This minimum point of LRAC determines the lowest cost at which the firm can produce the output. In the short-run, the firm may experience fluctuations in variable costs due to changes in output, which can be shown by the short-run marginal cost (SMC) curve. In long-run equilibrium, the SMC curve intersects the LRAC curve at its minimum point, which means that the firms are operating at minimum possible cost in the long-run. Thus, the statement is true.

In Long-Run Equilibrium, a Perfectly Competitive Firm's Short-Run Marginal Cost