Which of the following MUST be true for a firm in a perfectly competitive market in the short run and in the long run?

Choose 1 answer:
(A) Firms make losses.
(B) Firms earn positive economic profit.
(c) Firms charge prices higher than the average total cost.
(D) Price equals marginal cost.
(Б) Firms produce the cost-efficient quantity.

Question

Which of the following MUST be true for a firm in a perfectly competitive market in the short run and in the long run?

Choose 1 answer:
(A) Firms make losses.
(B) Firms earn positive economic profit.
(c) Firms charge prices higher than the average total cost.
(D) Price equals marginal cost.
(Б) Firms produce the cost-efficient quantity.

Accepted Answer

∻Solution∻ ‖ a ⋮ Perfect Competition: In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price. ‖ ‖ b ⋮ Short Run: In the short run, firms can make profits, losses, or break even. However, they will produce where $P = MC$ to maximize profit. ‖ ‖ c ⋮ Long Run: In the long run, firms will enter or exit the market until economic profit is zero. At this point, $P = MC = ATC$. ‖ ‖ d ⋮ Price Equals Marginal Cost: In both the short run and long run, firms in a perfectly competitive market will produce where $P = MC$. ‖ ∻Answer∻ ⚹ (D) Price equals marginal cost. ⚹ ∻Key Concept∻ ⚹ Price equals marginal cost in both the short run and long run for firms in a perfectly competitive market. ⚹ ∻Explanation∻ ⚹ In a perfectly competitive market, firms are price takers and will produce where price equals marginal cost ($P = MC$) to maximize profit. In the long run, firms will enter or exit the market until economic profit is zero, ensuring that $P = MC = ATC$. ⚹◊What is the relationship between price and marginal cost in a perfectly competitive⍭ Generate me a similar question◊

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