Multiple Choice
Which of the following scenarios is closest to market equilibrium, where there is zero surplus or shortfall?
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
Refer to Figure 13-3. Which of the points in the graph represent possible long-run equilibria in a perfectly competitive market?
A
Points where price is above average total cost (ATC)
B
Points where marginal cost (MC) is less than average total cost (ATC)
C
Points where price equals minimum average total cost (ATC)
D
Points where price is below average variable cost (AVC)
Verified step by step guidance1
Understand the concept of long-run equilibrium in a perfectly competitive market: it occurs where firms make zero economic profit, meaning price equals the minimum point of average total cost (ATC).
Identify that in long-run equilibrium, the price (P) must equal marginal cost (MC) and also equal the minimum average total cost (ATC), ensuring no incentive for firms to enter or exit the market.
Recognize that points where price is above ATC indicate positive economic profits, which attract new firms and thus are not long-run equilibria.
Note that points where MC is less than ATC do not necessarily indicate equilibrium; the key is that price equals minimum ATC, not just the relationship between MC and ATC.
Understand that points where price is below average variable cost (AVC) imply firms would shut down in the short run, so these cannot be long-run equilibria.
