When a purely competitive firm is in long-run equilibrium,
A) marginal revenue exceeds marginal cost.
B) price equals marginal cost.
C) total revenue exceeds total cost.
D) minimum average total cost is less than the product price.

Question

Quizplus · Accepted Answer

In long-run equilibrium within a purely competitive market, price equals marginal cost. This occurs because the market is characterized by unrestricted entry and exit of firms, leading to firms earning only normal profits. As a result, firms only produce at the point where price equals marginal cost, ensuring that they cover all their costs while earning no economic profit. This allocation of resources results in a socially efficient outcome, as resources are being utilized to produce goods demanded by the consumers at the lowest possible cost.

When a Purely Competitive Firm Is in Long-Run Equilibrium