In the long run a competitive firm will:
A)produce where MR = LRATC.
B)have larger output than in the short run.
C)only operates if it earns positive economic profits.
D)have a constant marginal cost.

Question

Quizplus · Accepted Answer

In the long run, a competitive firm will produce where marginal revenue (MR) equals long-run average total cost (LRATC) in order to maximize profits. This point is known as the minimum efficient scale and at this point, the firm is producing at the lowest possible cost per unit. The firm may or may not earn profits at this point, but it will continue to produce as long as it covers its variable costs. Therefore, choices B and C are incorrect as the firm's output and profits depend on market conditions and not just the long run. Choice D is incorrect as the marginal cost of a firm may change in the long run due to changes in technology, input prices, and other factors.

In the Long Run a Competitive Firm Will