Which of the following are true about the equilibrium of the Industry in long run under perfect competi…
In the long-run equilibrium of an industry under perfect competition: (A) industry long-run supply and demand are in equilibrium, (B) every firm is in long-run equilibrium…
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Which of the following are true about the equilibrium of the Industry in long run under perfect competi tion?
A. The long-mn supply and demand for the product of the industry should be in equilibrium
B. All firms in the industay should be in long run equilibrium by equating price with long-mn marginal cost (P=LMC)
C. There should be tendency for the new firms to enter the industry, or for the existing firms to leave it
D. The firms are earning zero economic profits with price being equal to long-mn minimum average cost (P=min. LAC)
E. The firms would not have adjusted their size of plants when there is long-run equilibrium (P=LMC)
Answer and explanation
Correct answer C
In the long-run equilibrium of an industry under perfect competition: (A) industry long-run supply and demand are in equilibrium, (B) every firm is in long-run equilibrium by equating price with long-run marginal cost (P = LMC), and (D) free entry and exit ensure that all firms earn only normal profit (zero economic profit) at the minimum point of the long-run average cost curve (P = min LAC = LMC = SAC = SMC), i.e., A, B & D only. There is no tendency for firms to enter or leave (contrary to C), and all firms have fully adjusted their plant sizes (contrary to E).
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UGC NET Commerce