Question

For a perfectly competitive market made up of firms represented in the graph below, what is the long run equilibrium price of the good? Cost ($) MC ATC AVC $16 $14 $12 $10 Quantity $14 $10 $12 $16

Answer 1

1) in perfect competitive makret,

In long run, ATC = LMC = AR = Price = 12.

So, option C is correct that is 12$.

2) at price = 14$

The price is greater than ATC. which means that there is positive economic profits to each firm and hence, new firms will enter the market to earn profits.

So, option C is correct.

3) shut down point is when average variable cost exceeds the price level.

Hence, option B is correct that is 10$.