Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by
A)the minimum point on the firms' average variable cost curve.
B)the minimum point on the firms' average total cost curve.
C)the portion of the marginal cost curve below average variable cost.
D)a firm's level of sunk costs.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms produce at minimum long-run average total cost (LRATC) in the long-run equilibrium. This is because there are no barriers to entry or exit, so firms can enter or exit the market as necessary to drive profits to zero. At the minimum LRATC point, firms produce at their efficient scale, which allows them to produce at the lowest possible cost per unit. This minimum point on the firms' average total cost (ATC) curve determines the market price, as all firms must charge the same price in a perfectly competitive market.

Consider a Competitive Market with a Large Number of Identical