Final answer:
In a perfectly competitive market, firms produce at the minimum of the ATC curve due to entry and exit forces pushing profits to zero, which occurs when price equals ATC. This ensures productive efficiency, with goods produced at the lowest cost.
Step-by-step explanation:
The correct answer to why firms produce at the minimum of the ATC curve in a perfectly competitive market in the long-run is b. Entry and Exit forces the profits to zero, which can only occur when price is equal to the minimum of the ATC curve.Perfect competition ensures that in the long-run, firms will make neither profits nor losses, leading to an equilibrium where the market price equals the minimum average total cost (ATC). When market conditions change, such as an increase in demand, firms initially making economic profits will attract new entrants due to the profit potential.
As new firms enter, supply increases, driving down prices until firms are again earning zero economic profits, which occurs at the minimum of the ATC. This process of entry and exit continues until firms are producing at an output level where price equates to the minimum point of the AC curve, signaling no incentive for further entry or exit. This outcome represents productive efficiency, where goods are produced at the lowest possible average cost, and is characteristic of a perfectly competitive market structure, unlike in monopolistic competition, where firms do not achieve this minimum.