The correct answer is D. Only 1.
The condition of marginal cost is equal to marginal revenue, the average cost is equal to average revenue, average revenue is equal to marginal revenue, and the average cost is equal to marginal cost is the condition of long-period equilibrium for a firm under perfect competition.
In perfect competition, there are a large number of firms producing identical products. This means that each firm has a small share of the market and cannot affect the market price. As a result, each firm faces a perfectly elastic demand curve.
The long-run equilibrium for a firm under perfect competition occurs when the firm produces at the point where marginal cost is equal to marginal revenue. At this point, the firm is producing at the minimum point of its average cost curve. This means that the firm is producing at the most efficient level of output and is earning zero economic profit.
In the short run, a firm under perfect competition may produce at a point where marginal cost is not equal to marginal revenue. This is because the firm may have fixed costs that it must pay even if it produces no output. In the short run, the firm will produce at the point where marginal cost is equal to average variable cost. At this point, the firm is covering its variable costs but not its fixed costs.
The following diagram shows the long-run equilibrium for a firm under perfect competition. The firm produces at the point where MC = MR, which is also the minimum point of the AC curve. The firm earns zero economic profit at this point.
[Diagram of a firm under perfect competition]
The following diagram shows the short-run equilibrium for a firm under perfect competition. The firm produces at the point where MC = AVC, which is not the minimum point of the AC curve. The firm covers its variable costs but not its fixed costs at this point.
[Diagram of a firm under perfect competition in the short run]