The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.
The long run equilibrium quantity in this industry is
A) 300.
B) 500.
C) 700.
D) more than 700.

Question

The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions. 
The long run equilibrium quantity in this industry is
A) 300. 
B) 500. 
C) 700. 
D) more than 700.

Quizplus · Accepted Answer

The long run equilibrium quantity is where the market supply and demand curves intersect, which is at a quantity of 500 in this case. This is where the marginal cost equals the marginal revenue and firms are earning zero economic profit. Any quantity greater than 500 would mean that firms are earning positive economic profit, which would attract new entrants into the industry and drive the price down until firms are once again earning zero economic profit at a quantity of 500.

The Following Graphs Depict a Perfectly Competitive Firm and Its