The cost and marginal revenue curves for a firm in a perfectly competitive market are shown in this graph.

At which price do other firms have no incentive to enter or exit this market?

Choose 1 answer:
(A) $\$ 20$
(B) $\$ 35$
(C) $\$ 130$
(D) $\$ 80$
(E) $\$ 214$

Question

The cost and marginal revenue curves for a firm in a perfectly competitive market are shown in this graph.

At which price do other firms have no incentive to enter or exit this market?

Choose 1 answer:
(A) $\$ 20$
(B) $\$ 35$
(C) $\$ 130$
(D) $\$ 80$
(E) $\$ 214$

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Long-Run Equilibrium: In a perfectly competitive market, long-run equilibrium occurs where firms make zero economic profit. This happens when the price equals both the marginal cost (MC) and the average total cost (ATC). ‖ ‖ b ⋮ Identifying the Equilibrium Price: From the graph, we need to find the price at which the ATC curve intersects the MC curve. This intersection point represents the price at which firms have no incentive to enter or exit the market. ‖ ‖ c ⋮ Analyzing the Graph: The ATC curve intersects the MC curve at the point where the quantity is 8 and the price is $35. ‖ ∻Answer∻ ⚹ $35 ⚹ ∻Key Concept∻ ⚹ Long-Run Equilibrium in Perfect Competition ⚹ ∻Explanation∻ ⚹ In a perfectly competitive market, firms will enter or exit the market until they make zero economic profit. This occurs when the price equals both the marginal cost (MC) and the average total cost (ATC). From the graph, this equilibrium price is $35. ⚹◊What is the relationship between marginal cost and marginal revenue in a perfectly competitive market according to the information⍭ Generate me a similar question◊

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