Consider a perfectly competitive firm.Which of the following equalities could hold true in a short- run equilibrium but not in a long- run equilibrium?

Question

Quizplus · Accepted Answer

In the short-run, a perfectly competitive firm may continue to operate even if it is not covering all its costs, as long as it is able to cover its variable costs. Thus, it is possible for P to be equal to AVC in the short-run equilibrium. However, in the long-run, when all factors of production are variable, the firm must be able to cover all its costs in order to continue operating. Therefore, in the long-run equilibrium, P must be equal to ATC (which includes both AVC and AFC), not just AVC. The other equalities listed can hold true in both short-run and long-run equilibrium.

Consider a Perfectly Competitive Firm