A Price-Taker Market Tends Toward a State of Long-Run Equilibrium

question 52

Multiple Choice

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because

• A) firms will keep their prices low under fear of government regulation.
• B) with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs.
• C) by definition, production costs always rise to equal the market price.
• D) mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost.

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