Question

refer to the above figures for the typical firm in a competitive market. which of the following describes the long-run competitive equilibrium? responses a when market demand is at d2, the typical firm produces q2.when market demand is at d 2 , the typical firm produces q 2 . b when market demand is at d3, the typical firm produces q3.when market demand is at d 3 , the typical firm produces q 3 . c when market demand is at d2, the typical firm produces q3.when market demand is at d 2 , the typical firm produces q 3 . d when market demand is at d3, the typical firm produces q2.

Answer 1

In a competitive market, firms are price-takers and must accept the market price. The long-run competitive equilibrium occurs when the market price is such that the typical firm earns zero economic profit, which means that the firm is covering all of its costs including opportunity costs. This occurs at the point where the market demand intersects the long-run average cost curve, which is represented by the point where the firm produces q3 in response to market demand d3. Therefore, the correct answer is b: when market demand is at d3, the typical firm produces q3. In this situation, the firm is producing the quantity that minimizes its long-run average cost and is earning zero economic profit. Any deviation from this quantity would result in the firm not being able to cover all of its costs in the long run, and the market would eventually adjust back to this equilibrium.