Comparing the short- run and long- run profit- maximizing positions of a perfectly competitive firm, which statement is true?
A) The firm may have unexploited economies of scale in both the short run and the long run.
B) Price will equal marginal cost in the short run, but not necessarily in the long run.
C) Price should equal average cost in the long run, but not necessarily in the short run.
D) The firm will produce at minimum average cost in both the short and long run.
E) Economic profit may exist in the short run and in the long run.

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm will produce at the point where marginal revenue equals marginal cost, but may not be producing at minimum average cost. However, in the long run, firms have the opportunity to adjust all inputs, including plant size, and can enter or exit the industry. In the long run, firms will produce at the minimum of their long-run average cost curve, which means price should equal average cost.

Comparing the Short- Run and Long- Run Profit- Maximizing Positions