Question

Assume that the home construction industry is perfectly competitive and in long-run competitive equilibrium. It follows that: A. marginal cost exceeds long-run average total cost.B. marginal cost equals long-run average total cost.C. there will be incentive for new firms to enter the industry.D. firms in the industry enjoy economic profits.

Answer 1

B. Marginal cost equals long-run average total cost.

Step-by-step explanation:

The zero profit condition implies that entry continues until all firms are producing at minimum long run average total cost. Since the marginal cost curve cuts the long run average total cost curve at its minimum point, marginal cost and long run average total cost must be equal in long run equilibrium.