Which of the following is not true in a long-run perfectly competitive equilibrium?
A) $P = M C$, where $P$ is market price and $M C$ is the marginal cost of a firm.
B) $P = A C$, where $P$ is market price and $A C$ is the average cost of a firm.
C) $Q ^ { d } = n q$, where $q$ is the supply of an individual firm, $n$ is the number of firms in the industry, and $Q ^ { d }$ is the market demand for a product.
D) Firms may earn negative profits.

Question

Which of the following is not true in a long-run perfectly competitive equilibrium? 
A) $P = M C$, where $P$ is market price and $M C$ is the marginal cost of a firm.
B) $P = A C$, where $P$ is market price and $A C$ is the average cost of a firm.
C) $Q ^ { d } = n q$, where $q$ is the supply of an individual firm, $n$ is the number of firms in the industry, and $Q ^ { d }$ is the market demand for a product.
D) Firms may earn negative profits.

Quizplus · Accepted Answer

In a long-run perfectly competitive equilibrium, firms only earn normal profits, not negative profits. If firms were earning negative profits, they would exit the market, causing the market supply to decrease and prices to rise until all remaining firms earned normal profits. In a long-run perfectly competitive equilibrium, firms cannot earn positive economic profits, but they can still earn negative profits. This is because in the long run, firms have the flexibility to exit the industry if they are not earning enough to cover their costs. Therefore, only firms that are able to minimize their costs will remain in the industry, earning zero economic profits. However, some firms may still experience losses if they are unable to cover all of their costs, such as fixed costs.

Which of the Following Is Not True in a Long-Run P=MCP = M CP=MC

Which of the Following Is Not True in a Long-Run $P = M C$