In a competitive industry, which of the following cannot be true for a firm in the long run?
A)Price equals marginal cost.
B)Profits are maximized.
C)The firm takes market price as given.
D)Economic profits equal zero.
E)Price equals average variable cost.

Question

Quizplus · Accepted Answer

In a competitive industry, in the long run, firms cannot operate where price equals average variable cost. In the long run, firms must cover all their costs, including fixed and variable, to remain in the market. Therefore, price must equal or exceed average total cost for firms to make zero economic profit and stay in business. If price only equals average variable cost, the firm would not cover its average fixed costs in the long run, leading to an exit from the market.

In a Competitive Industry, Which of the Following Cannot Be