The figures show the market for bread in the short-run and in the long-run. The horizontal axis is the number of loaves and the vertical axis is the price and cost in Euros (€). Al... The figures show the market for bread in the short-run and in the long-run. The horizontal axis is the number of loaves and the vertical axis is the price and cost in Euros (€). All bakeries are identical. Which of the following statements is correct? - The transition from the short-run to the long-run equilibrium is immediate. - Each bakery's output is higher in the long-run equilibrium than in the short-run equilibrium. - The number of bakeries in the long-run equilibrium is given exogenously. - The long-run equilibrium is reached when the marginal cost equals the average cost.
Understand the Problem
The question pertains to the market for bread, specifically the transition between the short-run and long-run, as depicted in accompanying graphs showing isoprofit and cost curves for bakeries, along with market supply and demand. The task is to identify which of the given statements accurately describes the represented economic scenario.
Answer
The long-run equilibrium occurs when marginal cost equals average cost.
The long-run equilibrium is reached when the marginal cost equals the average cost.
Answer for screen readers
The long-run equilibrium is reached when the marginal cost equals the average cost.
More Information
In the long-run equilibrium of a perfectly competitive market, firms produce at the point where marginal cost (MC) equals average cost (AC). This ensures that firms are earning zero economic profit and there is no incentive for entry or exit.
Tips
Confusing short-run and long-run equilibrium conditions is a common mistake. Remember that in the long run, firms can enter or exit the market, leading to adjustments that drive economic profit to zero.
Sources
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