Consider a perfectly competitive firm when its industry is in long-run equilibrium.In this case,

Question

Quizplus · Accepted Answer

In long-run equilibrium, the firm is earning normal profits, which means that its price equals minimum short-run and long-run average total cost. This is because in a perfectly competitive market, firms have no market power and are price-takers, meaning they cannot influence the market price. Therefore, the market price is determined by the intersection of supply and demand, and firms must adjust their output and costs to earn normal profits in the long run. Marginal revenue equals price in a perfectly competitive market, so neither A nor B is correct. Economic profits are zero in long-run equilibrium, so D is incorrect. Average fixed costs being at the maximum is not necessarily true in long-run equilibrium, so E is incorrect.

Consider a Perfectly Competitive Firm When Its Industry Is in Long-Run