Question

In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at:

a. Maximum average total cost
b. Minimum average variable cost
c. Minimum average total cost
d. Maximum marginal cost

Answer 1

In long-run equilibrium under pure competition, firms produce at the point of minimum average total cost, where marginal cost equals average total cost, leading to normal profits.

Step-by-step explanation:

In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at the point where they can achieve minimum average total cost (ATC). This is because in the long run, perfectly competitive firms will adjust their scale of operation until they are operating at their most efficient scale, which is where marginal cost (MC) is equal to average total cost and average total cost is at its minimum. This results in the firm making normal profits, also known as zero economic profits, where the market price faced by the firm is equal to its average cost at the profit-maximizing quantity of output.