Which of the following will NOT hold true for a competitive firm in long-run equilibrium?

• A. Price equals marginal cost
• B. Average total cost is minimized
• C. Marginal cost is greater than average total cost
• D. Economic profit is zero

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the characteristics of a competitive firm in long-run equilibrium. In this state, firms produce where price equals marginal cost (P = MC), and economic profit is zero because any positive profit attracts new firms, increasing supply and driving profits down.
2. Step 2: Recall that in long-run equilibrium, firms operate at the minimum point of their average total cost (ATC) curve. This means that average total cost is minimized, and price equals this minimum average total cost (P = min ATC).
3. Step 3: Analyze the relationship between marginal cost (MC) and average total cost (ATC). When ATC is at its minimum, MC equals ATC. If MC were greater than ATC, ATC would be rising, which contradicts the condition of minimized average total cost in long-run equilibrium.
4. Step 4: Evaluate the statement 'Marginal cost is greater than average total cost.' Since in long-run equilibrium MC = ATC at the minimum point, this statement does NOT hold true for a competitive firm in long-run equilibrium.
5. Step 5: Summarize that the statements 'Price equals marginal cost,' 'Average total cost is minimized,' and 'Economic profit is zero' all hold true in long-run equilibrium, while 'Marginal cost is greater than average total cost' does not.