In long-run equilibrium, a purely competitive firm will operate where price is
A) greater than MR but equal to MC and minimum ATC.
B) greater than MR and MC, but equal to minimum ATC.
C) greater than MC and minimum ATC, but equal to MR.
D) equal to MR, MC, and minimum ATC.

Question

Quizplus · Accepted Answer

In long-run equilibrium, a perfectly competitive firm will operate where price is equal to marginal revenue (MR), marginal cost (MC), and minimum average total cost (ATC). This is because in a perfectly competitive market, firms are price takers and must accept the market price determined by the intersection of the supply and demand curves. If the price exceeds the firm's average total cost (ATC), the firm will earn profits and new firms will enter the market, increasing supply and driving the price down. If the price falls below the ATC, firms will incur losses and some firms will exit the market, decreasing supply and driving the price up. Therefore, in the long run, firms in a perfectly competitive market will earn only normal profits, where price is equal to MR, MC, and minimum ATC.

In Long-Run Equilibrium, a Purely Competitive Firm Will Operate Where