When all firms and potential firms in a market have the same cost curves,the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

Question

Quizplus · Accepted Answer

When all firms and potential firms in a market have the same cost curves, they will all produce at the efficient scale in the long run. This means that they will be producing at the lowest possible average cost, and any deviation from this scale would result in higher costs and lower profits. Therefore, firms will not be earning economic profits, but they will also not be facing future losses. They will be able to stay in the market and compete with each other on price and quality, resulting in a long-run equilibrium with efficient outcomes. There is no incentive for firms to band together and raise prices since this would reduce their market share and profits.

When All Firms and Potential Firms in a Market Have