In the long run under perfect competition, the equilibrium price is determined at the level where it is equal to which of the following?

AC

The correct answer is option 2: AC

• In the long run under perfect competition, equilibrium is achieved when: Price = Average Cost (AC)

  This is because:

  • Firms enter or exit the market freely.

  • Long-run equilibrium occurs where firms make normal profit (zero economic profit).

  • At this point, Price = AR = MR = MC = AC, but AC is the key cost condition that determines equilibrium price.

Why not the other options?

• Option 1 (AR): AR is equal to price, but does not determine it. The question asks where the price is determined.

• Option 3 (AVC): Relevant only in short-run shutdown decisions, not in long-run equilibrium.