Question

For a perfectly competitive firm, if MC = minimum ATC, then:

Answer 1

The firm is in long-run equilibrium

or

the firm is making zero economic profit

or

the firm is making normal profit

or

the firm achieving allocative and productive efficiency

or

the average total cost is minimum

one of the above may be the answer

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Explanation:

A perfectly competitive firm has a horizontal demand curve as the market has many firms and the product is identical, also the consumers have perfect knowledge of the market.

and the profit-maximizing rule of MR=MC becomes MC=P, so the firm has MC=P at the profit maximization level

from the given information

P=MC=ATC

Economic profit =(P-ATC)*Q=0*Q=0

so the economic profit is zero, which is also called the profit is equal to implicit cost and that is the normal profit.

P=MC means the marginal benefit is equal to marginal cost which is called allocative efficient output level

MC=ATC output is called the reproductive efficient output level as it is produced at minimum ATC.

the MC=ATC means also the average total cost is minimum at that point.

a perfectly competitive firm produces at MC=ATC in the long run because of the free entry and exit of the firms.