Hi,
I don’t know if it’s because of the stress, but I am really struggling solving the eoc 5 of the chapter 16.
In the answer, they are mentionning: The long-run competitive equilibrium occurs where MC = AC = P for each company. However, I am unable to find this information in the curriculum!
Could someone help me please?
Cant get hold of the corriculum now, but based on your expression of MC=AC=P, i am assuming you are referring to the Perfect competition.
This simply means that in the long run, no firm in the market can make economic profit, but rather normal profit.
In this market, no firm can sell its good above the market reservation price, as an increase in the price of your good will lead to you loosing the market shares.
Here, the products you sell is exactly what other sellers sells (homogeneous goods).
This is why it is not possible for any firm to make any other profit apart from the opportunity cost of capital which is already factored into the market clearing price §.
Thus MC=AC=P in the long run.
Hi, thanks
I did the problem yesterday and it’s solved
you are welcome.