The most efficient production occurs where MC=AC (where AC is minimum). Therefore, a firm with many...

The most efficient production occurs where MC=AC (where AC is minimum). Therefore, a firm with many plants will make sure to have each of them produce at their minimum AC. True, False, Explain.

Expert Solution

It is a true statement for a perfect competition market. In a peerfect competition market, the individual firms will get the equilibrium output where the marginal revenue is equal to the marginal cost and also the marginal cost is equal to the minimum point of average cost. This is nothing but represeting that all the firms in the industry gets normal profits. If the average cost is equal to the minimum point of average revenue at the efficient producation point the firms tends to get only normal profits. In long run perfect competition market, all the firms get normal profit because of free entry and free exit condition. If the firms gets supernormal profits in the long run it will attract other firms to enter into the industry because of this the supply increases and the price comes down. In constrast if the they are getting losses some of the firms leave the industry becasue of this the supply decreases and price increases. Because of this in long run all the firms gets only normal profits.

Hence the statement given is true if the market is a perfect competition market.

Rahul Sunny answered 2 years ago

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