Answer to Question #291265 in Microeconomics for Kunje

Question

With the help of well-lebelled diagrams, compare the long run equilibrium of a firm under a perfectly competitive market structure and a monopoly market structure

Answer 1

The long-run equilibrium of a perfectly competitive market occurs when marginal revenue equals marginal costs, which is also equal to average total costs.

In monopoly, on the other hand, long- run equilibrium occurs at the point of intersection between the monopolist's marginal revenue (MR) and long-run marginal cost (LMC) curves. Since at the minimum point of the LAC curve, LAC = LMC, we have price = LMC in the long-run equilibrium of the competitive firm.