When firms are neither entering nor exiting a perfectly competitive market,
A)total revenue must equal total cost for each firm.
B)economic profits must be zero.
C)price must equal the minimum of marginal cost for each firm.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

When firms are neither entering nor exiting a perfectly competitive market, it means that the industry is in a long-run equilibrium. At this point, each firm is earning normal profits which means economic profits must be zero (option B). In a long-run equilibrium, price must equal the minimum of average total cost (which is also equal to the minimum of marginal cost) in order for firms to cover their costs and earn normal profits. This means that total revenue must equal total cost for each firm (option A). Therefore, both options A and B are correct.

When Firms Are Neither Entering nor Exiting a Perfectly Competitive