In a perfectly competitive market, the market price is $3.50, and firms are producing 100 units. At a quantity of 100 units, average total cost is $4, and average variable cost is $3. In the long run, price will:

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In a perfectly competitive market, if the price is below the average total cost but above the average variable cost, firms are covering their variable costs but not their total costs, leading to losses. Over time, this situation will cause some firms to exit the market. As firms exit, the supply decreases, leading to an increase in the market price. The price will rise towards the average total cost ($4 in this case) to eliminate losses, encouraging no further exits.

In a Perfectly Competitive Market, the Market Price Is $3