Equilibrium and BreakEven Price The equilibrium price in a p

Equilibrium and Break-Even Price. The equilibrium price in a perfectly competitive industry is sometimes below the break-even price, sometimes above it, and sometimes equal to it because the A. firm is a price taker and the equilibrium price is determined in the competitive market. B. firm is a price maker and the equilibrium price is determined in the competitive market. C. equilibrium price is determined by the number of buyers in the market. D. equilibrium price is determined by the number of firms in the market.

Solution

Correct option is (A).

In a perfectly competitive market, equilibrium price is determined by free market forces of market demand and market supply. Since each firm is a price taker, this market-determined price may be above or below the firm\'s average total cost (i.e. above or below the break-even level, since in break-even, Price = average total cost).