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CA Foundation · Business Economics · Price Determination in Different Markets

In the long-run equilibrium of a perfectly competitive firm, which of the following conditions holds?

In long-run perfect competition, price equals marginal cost and also equals minimum average cost. Free entry and exit wipe out supernormal profit, so each firm earns only normal profit and produces at the efficient scale at the lowest point of its average cost curve.

  1. APrice equals marginal cost but exceeds average cost, giving supernormal profit
  2. BPrice equals marginal cost and equals minimum average cost, giving only normal profitCorrect
  3. CPrice exceeds marginal cost and equals average cost
  4. DMarginal revenue exceeds marginal cost at the equilibrium output

Explanation

In the long run, free entry and exit eliminate supernormal profit. The firm produces where P = MR = MC, and competition pushes price down to the minimum point of long-run average cost, so P = AC and only normal profit remains. Option A describes a short-run situation, not long-run equilibrium.

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