Which of the following is true in a long-run competitive equilibrium?
A)Price is greater than average total cost.
B)Profits are greater than zero.
C)Marginal cost is greater than average total cost.
D)Market supply is greater than market demand.
E)There is no incentive to enter or exit the industry.

Question

Quizplus · Accepted Answer

In a long-run competitive equilibrium, firms are earning zero economic profits, meaning they are just covering their costs and receiving a normal rate of return on investment. Therefore, there is no incentive for new firms to enter the industry and existing firms do not have an incentive to exit, resulting in a stable market supply and demand. Additionally, the price will equal the minimum average total cost, ensuring that firms are not experiencing losses. Finally, since firms are producing at the point where marginal cost equals marginal revenue, and marginal cost is less than or equal to average total cost, it follows that in a long-run competitive equilibrium, choice C is untrue.

Which of the Following Is True in a Long-Run Competitive