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In the long run, a perfectly competitive firm adjusts its production level until ________.
- a)Marginal revenue equals marginal cost
- b)Average revenue equals average cost
- c)Total revenue equals total cost
- d)Economic profit is maximized
Correct answer is option 'B'. Can you explain this answer?
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In the long run, a perfectly competitive firm adjusts its production l...
In the long run, a perfectly competitive firm adjusts its production level until average revenue equals average cost. This ensures that the firm is earning zero economic profits. If average revenue exceeds average cost, firms are earning positive economic profits, attracting new firms to enter the market. As new firms enter, competition increases, driving down prices until average revenue equals average cost. If average revenue is less than average cost, firms are incurring losses, leading some firms to exit the market. As firms exit, competition decreases, allowing the remaining firms to increase their prices until average revenue equals average cost.
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In the long run, a perfectly competitive firm adjusts its production level until ________.a)Marginal revenue equals marginal costb)Average revenue equals average costc)Total revenue equals total costd)Economic profit is maximizedCorrect answer is option 'B'. Can you explain this answer?
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