When a perfectly competitive industry is in long-run equilibrium, firms maximize profits, and entry forces the price down

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a perfectly competitive industry, firms will produce where price is equal to the minimum point of their long-run average cost curve (LRAC). This is because firms will only produce if they can cover all their costs, including normal profit. When new firms enter, the industry supply curve shifts to the right, causing the price to fall until it is tangent to the LRAC curve of each firm. At this point, each firm is earning zero economic profit, which is considered an acceptable level of profit for most firms in the long run. Therefore, choice C is the correct answer.

When a Perfectly Competitive Industry Is in Long-Run Equilibrium, Firms