Question

In the situation of perfect competition, in long run equilibrium which of the following is not true:

the marginal cost curve intersects the average cost curve at the minimum point of the average cost curve.

average costs are equal to the market price of the good.

average costs are equal to marginal revenue.

the demand curve facing the individual firm has a downward slope.

Assuming long-run equilibrium exists, when demand increases in a perfectly competitive market, in the long run the average total cost curve for a typical firm

no longer u-shaped

shifts downward

shifts upward

stays the same

In a market situation of perfect competition, if average costs are greater than price, then in the long run:

market demand will increase.market demand will decrease.entry into the market by other suppliers will occur.

exit from the market by suppliers will occur. market demand will increase and entry into the market by other suppliers will occur. market demand will decrease and exit from the market by suppliers will occur.

Answer 1

(1) In long run for a perfectly competitive firm, equilibrium occurs at the following point.

P = MC = AC.

• MC intersects AC at its minimum point.
• Price is equal to marginal cost.
• In perfect competition, P = MR = AR. So, AC = MR in long run equilibrium point.
• Individual perfectly competitive firm demand curve is horizontal.

Answer: Option (D) i.e., the demand curve facing the individual firm has a downward slope is incorrect statement.

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(2) Assuming long-run equilibrium exists, when demand increases in a perfectly competitive market, in the long run the average total cost curve for a typical firm stay the same.

Answer: Option (D)

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(3) In a market situation of perfect competition, if average costs are greater than price, then in the long run, exit from the market by the suppliers will occur.