Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves becauseQuestion 2Select one:a.firms seek maximum profits and to do so they must choose to produce where average costs are minimized.b.firms maximize profits and free entry implies that maximum profits will be zero.c.free entry implies that long-run profits will be zero no matter how much each firm produces.d.firms in the industry desire to operate efficiently.
Question
Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves becauseQuestion 2Select one:a.firms seek maximum profits and to do so they must choose to produce where average costs are minimized.b.firms maximize profits and free entry implies that maximum profits will be zero.c.free entry implies that long-run profits will be zero no matter how much each firm produces.d.firms in the industry desire to operate efficiently.
Solution
The correct answer is a. Firms seek maximum profits and to do so they must choose to produce where average costs are minimized.
In a perfectly competitive market, firms are price takers and cannot influence the market price. Therefore, to maximize profits, they must minimize costs. The point where the average total cost is at its lowest is the most efficient point of production, and this is where firms will produce in the long run. This is because at this point, they are getting the maximum possible output from their inputs, which means they are making the most efficient use of their resources.
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