In long-run equilibrium, purely competitive markets
A) minimize total cost.
B) maximize the sum of consumer surplus and producer surplus.
C) yield economic profits to most sellers.
D) inevitably degenerate into monopoly in increasing-cost industries.

Question

Quizplus · Accepted Answer

In long-run equilibrium in purely competitive markets, the price will be equal to the minimum average total cost of production, which leads to the maximization of both consumer surplus and producer surplus. This is because at this price, the quantity supplied by producers will be equal to the quantity demanded by consumers, and all resources will be allocated efficiently. In the long run, economic profits will be zero as new firms will enter the market and drive down prices until they are equal to the minimum average total cost. Therefore, (A) is incorrect. (C) is incorrect because firms in purely competitive markets do not earn economic profits in the long run. (D) is incorrect because in a purely competitive market, there are no barriers to entry that prevent new firms from entering the market and competing with existing firms.

In Long-Run Equilibrium, Purely Competitive Markets