Test Your Knowledge: Long-Run Equilibrium Graphs (AP Micro)

📚 Quick Study Guide

• 📈 Perfect Competition: In the long run, firms in perfect competition earn zero economic profit. Price (P) equals Marginal Cost (MC), Average Total Cost (ATC), and Marginal Revenue (MR): $P = MC = ATC = MR$.
• ⚖️ Monopolistic Competition: Similar to perfect competition, firms earn zero economic profit in the long run. However, they operate with excess capacity and price is greater than marginal cost: $P > MC$.
• 🔒 Monopoly: Monopolies can sustain economic profits in the long run due to barriers to entry. They produce where MR = MC, but charge a price determined by the demand curve at that quantity.
• 📐 Cost Curves: Understand the relationship between MC, ATC, and Average Variable Cost (AVC). MC intersects both ATC and AVC at their minimum points.
• 🔄 Adjustments: Know how firms enter and exit markets in response to profits and losses, driving the market towards long-run equilibrium.
• 💡 Key Idea: Long-run equilibrium implies that firms are producing at the optimal scale, and there is no incentive for firms to enter or exit the market.

Practice Quiz

1. Which of the following is true about firms in perfect competition in long-run equilibrium?
   1. A) They earn positive economic profits.
   2. B) They produce where price equals marginal cost.
   3. C) They operate with excess capacity.
   4. D) Price is greater than marginal revenue.
2. In the long run, a monopolistically competitive firm will typically produce at a level where:
   1. A) Price equals marginal cost.
   2. B) Price is less than marginal cost.
   3. C) Price is greater than marginal cost.
   4. D) Marginal revenue equals average total cost.
3. Which market structure is most likely to maintain long-run economic profits?
   1. A) Perfect competition
   2. B) Monopolistic competition
   3. C) Monopoly
   4. D) Oligopoly
4. What condition characterizes long-run equilibrium in a perfectly competitive market?
   1. A) Firms are maximizing revenue.
   2. B) There is no incentive for firms to enter or exit.
   3. C) Firms are minimizing costs but earning positive economic profit.
   4. D) All firms are operating at maximum capacity.
5. In long-run equilibrium, a firm in monopolistic competition will produce where:
   1. A) ATC is minimized.
   2. B) MC is minimized.
   3. C) P = MC.
   4. D) P = ATC.
6. The entry of new firms into a monopolistically competitive industry will cause the existing firms' demand curves to:
   1. A) Shift to the right.
   2. B) Become more inelastic.
   3. C) Shift to the left.
   4. D) Become more elastic.
7. Which of the following statements is true about a monopolist's long-run equilibrium?
   1. A) Price equals marginal cost.
   2. B) Economic profits are always zero.
   3. C) Price is greater than marginal cost.
   4. D) Output is at the socially optimal level.