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Chartered Financial Analyst Level 1

Chartered Financial Analyst Level 1

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In long-run equilibrium, the supply curve of a perfectly competitive firm is most accurately represented by the firm's long-run:

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Explanation:

The correct answer is A because the long-run marginal cost schedule serves as the supply curve for a perfectly competitive firm. The firm's demand curve is determined by the equilibrium price in the market. The fundamental principle of profit maximization is that marginal revenue (MR) equals marginal cost (MC), which holds true in long-run equilibrium.

  • B is incorrect because the firm's average revenue (AR) schedule is represented by a horizontal line, which is the demand curve, not the supply curve.
  • C is incorrect because in a perfectly competitive market, the firm's demand schedule is identical to both its marginal revenue and average revenue schedules.

In a perfectly competitive market, the firm's primary decision is the quantity of output to produce, which is determined at the level where MR = MC. The demand curve is perfectly elastic, and the firm continuously seeks ways to reduce costs in the long run.

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