32.A perfectly competitive market in the short-run will be in equilibrium, where A. MC = AC B. MC = MR C. MC = zero D. MR=AR
Question
32. A perfectly competitive market in the short-run will be in equilibrium, where
A. MC = AC
B. MC = MR
C. MC = zero
D. MR = AR
Solution
1. Break Down the Problem
To determine the equilibrium condition for a perfectly competitive market in the short run, we need to analyze the relationship between marginal cost (MC), marginal revenue (MR), average cost (AC), and average revenue (AR).
2. Relevant Concepts
In a perfectly competitive market:
- Firms maximize their profit where:
- In the short run, firms may not necessarily cover their average cost (AC).
- The relationship between average revenue (AR) and marginal revenue (MR) is such that in perfect competition, they are equal:
3. Analysis and Detail
Let's analyze the options:
- A. MC = AC: This is true at a breakeven point in the long run but not necessarily true in the short-run equilibrium.
- B. MC = MR: This is the condition for profit maximization and is true in the short run for perfectly competitive firms.
- C. MC = zero: This is not a condition that represents short-run equilibrium.
- D. MR=AR: This is true for perfectly competitive markets, but it doesn't specifically represent the equilibrium condition for profit maximization.
4. Verify and Summarize
The correct answer for a perfectly competitive market in the short-run equilibrium where firms maximize profit is when marginal cost equals marginal revenue. Thus, B is the correct choice.
Final Answer
B. MC = MR
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