GENERAL KNOWLEDGE

Detailed explanation-1: -For a firm to achieve long run equilibrium, the marginal cost must be equal to the price and the long run average cost. That is, LMC = LAC = P. The firm adjusts the size of its plant to produce a level of output at which the LAC is minimum.

Detailed explanation-2: -At the market price, which the perfectly competitive firm accepts as given, the profit-maximizing firm chooses the output level where price or marginal revenue, which are the same thing for a perfectly competitive firm, is equal to marginal cost: P = MR = MC.

Detailed explanation-3: -A firm’s price equals marginal cost in both the short run and the long run. In both the short run and the long run, price equals marginal revenue. The firm should increase output as long as marginal revenue exceeds marginal cost, and reduce output if marginal revenue is less than marginal cost.

Detailed explanation-4: -In perfect competition, each firm produces at a point where price (P) equals marginal revenue (MR) and average revenue (AR). As seen before, each firm does not make any economic profit in the long run. The quantity produced by each firm is also the point where the average cost (AC) equals marginal cost (MC).