Question

Over a long run time frame for a perfectly competitive firm, each of the following conditions hold true but one. Which one is the exception?

A. Price = minimum ATC (average total cost).
B. MC = minimum ATC (average total cost).
C. Price =AFC (average fixed cost).
D. Price = MC (marginal cost).

Answer 1

C. Price =AFC (average fixed cost)

Step-by-step explanation:

A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.

In the long run, price = marginal cost = average total cost

if price = average fixed cost in the long run, the firm would be earning a loss and should exit the market