Correct Option: C. MR = MC = AR = AC Detailed Explanation: In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price of their product. Instead, they accept the market price as given. To understand why option C is the correct answer, we need to break down the concepts involved:

1. Marginal Cost (MC): This is the additional cost incurred by producing one more unit of a good or service. In equilibrium, firms will produce up to the point where the cost of producing one more unit (MC) equals the revenue gained from selling that unit (MR).
2. Marginal Revenue (MR): This is the additional revenue that a firm earns from selling one more unit of a good. In perfect competition, MR is equal to the price of the product because each additional unit sold does not affect the market price.
3. Average Revenue (AR): In perfect competition, AR is also equal to the price of the product. Since firms sell their products at the market price, the average revenue per unit sold is the same as the price.
4. Average Cost (AC): This is the total cost of production divided by the number of units produced. In the long run, for a firm to be in equilibrium, it must cover all its costs, including both fixed and variable costs.

In full equilibrium under perfect competition, the following conditions must hold: - MR = MC: This condition ensures that the firm is maximizing its profit. If MR is greater than MC, the firm can increase profit by producing more. If MC is greater than MR, the firm should reduce production to maximize profit. - AR = AC: This condition indicates that the firm is covering all its costs, including normal profit. If AR is greater than AC, the firm is making a profit, which will attract new firms into the market. If AR is less than AC, the firm is incurring losses, which will lead to firms exiting the market in the long run. Thus, in equilibrium, we have: - MR = MC (profit maximization) - AR = AC (normal profit, no economic profit or loss) Since in perfect competition, MR = AR, we can summarize this as: - MR = MC = AR = AC This is why option C is the correct answer. Why Other Options Are Incorrect:

• Option A: MC = MR and AC = AR
• This option states that MC equals MR, which is correct for profit maximization, but it incorrectly states that AC equals AR. In the long run, for firms in perfect competition, AR must equal AC for firms to be in equilibrium, not just at any point.
• Option B: MC = MR but AR > AC
• This option suggests that while the firm is maximizing profit (MC = MR), it is also making an economic profit (AR > AC). This situation cannot sustain in the long run in a perfectly competitive market because the presence of economic profits will attract new firms, driving the price down until AR equals AC.
• Option D: TR > TC
• This option states that total revenue (TR) is greater than total cost (TC), which indicates that the firm is making a profit. However, this does not represent full equilibrium. In the long run, firms in perfect competition will enter the market until profits are zero (TR = TC), meaning that firms will only earn normal profits.

Revision Summary:

• In perfect competition, firms achieve equilibrium when MR = MC = AR = AC.
• MR and MC must be equal for profit maximization.
• AR must equal AC in the long run for firms to cover all costs and earn normal profits.
• Economic profits attract new firms, leading to a long-run equilibrium where TR = TC.