Question

Which of the following statements are correct with regard to firm's equilibrium under perfect competition?
(i) MR = MC
(ii) MC curve cuts the MR curve from below
(iii) TR = TC
(iv) MR = AR

• A. i & ii
• B. ii & iii
• C. iii & iv
• D. i, ii, iii and iv

Answer 1

Answer: (D)

i, ii, iii and iv

Perfect competition will achieve equilibrium, when all firms make only normal profit in the long run, i.e., TC = TR. Each firm will produce at the profit maximizing level of output which is attained when MC = MR and the MC curve should intersect the MR curve from below for maximising profit in absolute terms. Also, since firms are price takers, MR = AR = P.