Assume a purely competitive firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then
A) the firm is earning an economic profit.
B) there is no tendency for the firm's industry to expand or contract.
C) allocative but not productive efficiency is being achieved.
D) other firms will enter this industry.

Question

Quizplus · Accepted Answer

If the long-run average total cost is at a minimum, the firm is producing at the most efficient level possible. This means that there is no room for the industry to expand or contract because any changes would result in less efficiency and higher costs. Choice A is incorrect because the question does not specify whether the firm is earning an economic profit or not. Choice C is incorrect because if allocative efficiency is being achieved, it also means that the firm is producing at the lowest possible cost, which is already stated in the premise of the question. Choice D is incorrect because if the industry is already producing at peak efficiency, there would be no incentive for new firms to enter.

Assume a Purely Competitive Firm Is Maximizing Profit at Some