Which of the followings conditions prevail in the long run equilibrium of industry for achieving optimal resource allocation

(A) The output is produced at the minimum feasible cost

(B) consumer pays the minimum possible price which just covers the marginal cost of the product

(C) Plants are used at full capacity in long run

(D) Firms earn supernormal profits 

(E) Perfect competitive firms and price mechanism operates

Choose the correct answer from the options given below:

The correct answer is (A), (B), (C), and (E).

Key Points

• Long-run equilibrium of firm and industry
  • For the equilibrium of firm and industry in the long run, the following are the necessary conditions-
    • Marginal revenue should be equal to the marginal cost, i.e., MR = MC.
    • The firms earn only normal profits, i.e., average revenue or price is exactly equal to the average cost, i.e., AR = AC.
    • The above two conditions can be consolidated as Price (AR) = MR = MC = Minimum AC
    • Optimum resource allocation requires the existence of perfectly competitive firms and the price mechanism.

Important Points

• Diagrammatic presentation

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• In the figure, point E denotes the long-run equilibrium of industry because at this point, AR = MR = LMC (or MC)= Minimum LAC (or AC).

 Thus, out of the given conditions, (A), (B), (C), and (E) prevail in the long-run equilibrium of industry for achieving optimal resource allocation.