The phenomenon that causes resources in perfectly competitive industries to shift toward their highest valued use in the long run is for entry and exit to occur until ________.
A) the market price equals the minimum of marginal cost
B) the market price equals the minimum of average variable cost
C) the market price equals the minimum of average total cost
D) all firms earn positive economic profits

Question

Quizplus · Accepted Answer

In the long run, resources in perfectly competitive industries will shift toward their highest valued use when the market price equals the minimum of average total cost. This is because in the long run, firms can enter or exit the market, and if firms are earning negative economic profits, they will exit the market, decreasing supply and increasing the market price. As the market price increases, firms that remain in the industry will be able to cover their costs and earn a normal profit. Eventually, the market price will reach the minimum of average total cost, where firms are earning zero economic profits but are still producing efficiently.

The Phenomenon That Causes Resources in Perfectly Competitive Industries to Shift