Properties of long-run competitive equilibrium with free entry include:
A) an equilibrium price equal to the minimum AC.
B) firms earning zero profits.
C) active firms producing at their efficient scales of production.
D) All of these are properties of long-run competitive equilibrium.

Question

Quizplus · Accepted Answer

Long-run competitive equilibrium with free entry entails that all of the mentioned properties hold true. The equilibrium price will be equal to the minimum average cost because new firms will enter the industry until profits have been competed away. This implies firms will earn zero economic profits but might still earn normal profits. In the long-run, firms in a perfectly competitive market tend to produce at their efficient scale of production (where average cost is at its minimum).

Properties of Long-Run Competitive Equilibrium with Free Entry Include