The following graphs depict a perfectly competitive firm and

The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. Given the current market conditions, the profit maximizing quantity for the individual firm is: Given the current market conditions, the individual firm is making: At what price will long-run equilibrium occur?

Solution

(11) Option (A)

At market-clearing price of $8, P = MC = $8 for individual profit-maximizing firm. At this price, equilibrium output is 30 units.

(12) Option (B)

At equilibrium output level, Price is higher than ATC, therefore economic profit [Output x (Price - ATC)] is positive.

(13) Option (C)

In long run equilibrium, price = MC = ATC, which holds true at price of $5.