Question

2. In long-run competitive equilibrium, P = MC = SRATC = LRATC. Because P = MR, we can write the preceding condition as P = MR = MC = SRATC = LRATC. The condition thus consists of four parts: (a) P = MR, (b) MR = MC, (c) P = SRATC, and (d) SRATC = LRATC. Part (b)—MR = MC—is true because the perfectly competitive firm attempts to maximize profits, and that equation represents how it does so. What are the explanations for (a), (c), and (d)?
   
   A) P = MR because,
   
   B)MR = MC because,
   
   C)P = SRATC, because
   
   D)SRATC = LRATC because

Answer 1

a) P = MR because the price of the goods will not change, the firm can sell as many goods as they can at the given price, that will make the marginal revenue = price at all output level.

b) P = SRATC because the firm in the long run will be producing at the point where the ATC is the lowest and price will be equal to the ATC.

c) SRATC =LRATC because the firm will be producing at the lowest of the SRATC and LRATC is made of all the short run ATC so it both will match in the long run.