When a purely competitive firm earns a normal economic total profit in the long run, it...

When a purely competitive firm earns a normal economic total profit in the long run, it produces a quantity Q of its final product where $Price = $Marginal Cost and also $Price = Minimum Average Total Cost. Why are these price and cost equalities considered to be beneficial for the entire economy?

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Expert Solution

When Price is equal to the minimum average total cost, then the firm is able to cover all of its costs fixed and variable so that it's revenue = total cost and it tends to earn a normal profit.

When this happens, the firm would be willing to keep the business running and so that the society keeps getting the goods at the desired price level. The price is equal to the marginal cost of providing the goods to the society and also equal to the minimum ATC which benefits both the firm and the society.

Rahul Sunny answered 1 year ago

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