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Which equality describes the long-run equilibrium of a firm in a perfectly competitive industry?
AAR < AVC at the chosen output
BMR > MC and AR > ATC at all outputs
CP > MC with LAC still falling
DSMC = LMC = SAC = LAC = P = MR
Answer & Solution
Correct answer: D. SMC = LMC = SAC = LAC = P = MR
1. In the long run, entry and exit drive economic profit to zero, so P equals LAC.
2. Profit maximisation requires P = MR = MC for both short and long run cost curves.
3. At the minimum of LAC, the optimal plant runs at its lowest SAC, so SAC equals LAC.
4. Combining these gives SMC = LMC = SAC = LAC = P = MR.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.9_
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