Which of the following will a firm do in the long run if market conditions do not change?

• A. Operate at a loss to maintain market share
• B. Continue to earn economic profits indefinitely
• C. Produce at a level where marginal cost exceeds marginal revenue
• D. Produce at the output level where average total cost is minimized

Answer: (D)

Verified step by step guidance

1. Understand that in the long run, firms in a perfectly competitive market will adjust their production to maximize profits or minimize losses, considering all costs including opportunity costs.
2. Recall that economic profits attract new firms, increasing supply and driving prices down, while losses cause firms to exit, reducing supply and driving prices up, until profits are zero.
3. Recognize that zero economic profit occurs when price equals the minimum point of the average total cost (ATC) curve, meaning the firm covers all costs including normal profit.
4. Note that producing where marginal cost (MC) equals marginal revenue (MR) ensures profit maximization, and in the long run, this coincides with producing at the minimum ATC.
5. Conclude that the firm will produce at the output level where average total cost is minimized, as this is the stable equilibrium point in the long run under unchanged market conditions.