Which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?
A) It is making economic profits in the long run.
B) Marginal cost equals average variable cost.
C) It produces at the minimum average total cost.
D) Its marginal revenue is less than average revenue.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms will produce at the minimum of average total cost in the long run to achieve productive efficiency. A is incorrect because a firm would not make economic profits in the long run in a perfectly competitive market as the market price is determined by the intersection of supply and demand. B is incorrect because in the long run, firms must cover all of their costs including fixed costs, so marginal cost equaling average variable cost would not imply productive efficiency. D is also incorrect because in a perfectly competitive market, the marginal revenue curve is a horizontal line, and is equal to average revenue.

Which Would Indicate That a Firm Is Operating Under Conditions