In the long-run equilibrium of a market with free entry and exit, marginal firms are operating
A)at the point where average variable cost equals marginal cost.
B)at the minimum point on their marginal cost curves.
C)at their efficient scale.
D)where accounting profit is zero.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a market with free entry and exit, firms will continue to enter until the supply curve shifts outwards and the price equals the minimum of the average total cost curve. At this point, firms will be operating at their efficient scale, where average total cost is minimized, and they will earn zero economic profit. Therefore, option C ("at their efficient scale") is the correct answer. Options A, B, and D may be true in some circumstances, but they do not necessarily hold in every case of long-run equilibrium with free entry and exit.

In the Long-Run Equilibrium of a Market with Free Entry