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?
A) P = AVC
B) TC = TFC + TVC
C) P = MR
D) P = MC
E) P = AR

Question

Quizplus · Accepted Answer

In the short-run, a perfectly competitive firm can operate at a loss as long as the price is greater than the average variable cost (AVC). However, in the long-run, if a firm continues to operate at a loss, it will eventually go out of business. Therefore, in the long-run, P must be greater than or equal to ATC (including normal profit), and thus, it cannot equal AVC. The other equalities listed hold true in both the short-run and long-run in a perfectly competitive market.

Consider a Perfectly Competitive Firm