Question

In which type of firms is \( MC = MR = AC = AR \) in the long run?

• A. Monopoly firm
• B. Oligopoly firm
• C. Perfectly competitive firm
• D. None of these

Hint:

In a perfectly competitive market, firms produce at the point where \( MC = MR = AC = AR \), ensuring the most efficient allocation of resources.

Answer 1

The Correct Option is C

Step 1: Understanding the Equation \( MC = MR = AC = AR \): 
In microeconomics, the condition \( MC = MR = AC = AR \) refers to the long-run equilibrium in perfectly competitive markets. Here: 
- \( MC \) is the marginal cost, or the cost of producing one additional unit. 
- \( MR \) is the marginal revenue, the additional revenue gained from selling one more unit. 
- \( AC \) is the average cost, the cost per unit of output. 
- \( AR \) is the average revenue, which is the revenue per unit of output (in a perfectly competitive market, \( AR = P \), where \( P \) is the price). 
Step 2: Analysis of Different Market Structures: 
- Monopoly firm: In a monopoly, the firm has market power, meaning it can set prices. In the long run, the monopoly maximizes profit where \( MC = MR \), but \( AC \) does not necessarily equal \( AR \). Hence, the condition is not satisfied in monopoly. 
- Oligopoly firm: In oligopoly, firms have some market power, but they do not operate at the point where \( MC = MR = AC = AR \) in the long run. This is because oligopolistic firms consider the actions of competitors, and they do not produce at the same efficiency as perfectly competitive firms. 
- Perfectly competitive firm: In a perfectly competitive market, firms are price takers. In the long run, firms produce at the point where \( MC = MR = AC = AR \), because the price is determined by market supply and demand, and firms cannot influence the price. 
Step 3: Conclusion: 
Thus, the condition \( MC = MR = AC = AR \) holds in the long run only for perfectly competitive firms, where they produce at the point of productive efficiency and allocative efficiency.