Exercise on Zero-Profit Condition: Solutions

Assume a LR equilibrium where the process of entry or exit is complete and remaining firms earn zero economic profit.
Questions: Write all possible formula of P when zero economic profit occur.

Solution:
  1. Since firms produce where P = MR = MC
    the zero-profit condition is P = MC = ATC
  2. Note that MC intersects ATC at minimum ATC
    So, in the LR, P = minimum ATC





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      Date of last modification: 2019