In long-run equilibrium, the perfectly competitive firm's price is equal to which of the following:
short-run marginal cost
minimum short-run average total cost
marginal revenue
all the above
I think that it is all the above. Am I correct?
I too would go with all of the above
Thanks for the input.
To determine the correct answer to this question, we need to understand the concept of long-run equilibrium in perfect competition and the relationship between price, marginal cost, average total cost, and marginal revenue.
In long-run equilibrium, a perfectly competitive firm earns zero economic profit. This means that the firm's total revenue equals its total costs. Therefore, the firm's price must be equal to its average total cost (ATC) in the long run.
In perfect competition, price is determined by the market forces of supply and demand. The price is set at the level where the quantity supplied equals the quantity demanded. Since perfectly competitive firms are price takers and cannot influence the market price, their price is equal to the market price.
Now let's examine the options:
1. Short-run marginal cost (SRMC): In the short run, a perfectly competitive firm will produce where its marginal cost (MC) equals the market price. However, in the long run, all costs are variable, and firms can adjust their production levels to minimize costs. Therefore, the short-run marginal cost does not necessarily equal the long-run price in perfect competition.
2. Minimum short-run average total cost (SRATC): In the short run, a perfectly competitive firm will produce where its average total cost (ATC) is at a minimum, given the market price. However, in the long run, firms can adjust their scale of production, including their inputs and technology, to minimize costs and achieve cost efficiency. Therefore, the minimum short-run average total cost does not necessarily equal the long-run price in perfect competition.
3. Marginal revenue (MR): Marginal revenue is the change in total revenue when one additional unit of output is sold. In perfect competition, where the firm is a price taker, the marginal revenue is equal to the market price. Therefore, the marginal revenue is equal to the long-run price in perfect competition.
Based on the explanation above, option (3) "marginal revenue" is the correct answer. In long-run equilibrium, the perfectly competitive firm's price is equal to its marginal revenue.