please explain why specifically In a perfectly competitive market, price equals

Question

please explain why specifically

In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in the figure on the right. In the long run, what would happen if the government decided to require the firm in the figure to charge a price equal to marginal cost at the firm's long-run output rate? MC 0 A. The firm will earn zero economic profit. B. The firm will incur a loss of $8 per unit and this and other 28 ATC 8 25 firms will leave the industry. ° C. The firm will expand its output to 160 units. D. The firm will increase its profit to $8 per unit and new firms will enter the industry. 9 20 0 100 MR 160

Explanation / Answer

Here MR intersects MC at a price of $20. However, the price the firm should charge for the same output is $28 as the average total cost is $28. So if the firm charges $20 for every product it will suffer a loss of $8 on every unit.

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