In order to continue operating,in the long-run a firm must
A)Charge a price equal to its AVC
B)Charge a price equal to its AFC
C)Charge a price equal to its AC
D)None of the above

Question

​In order to continue operating,in the long-run a firm must
A)​Charge a price equal to its AVC
B)Charge a price equal to its AFC
C)Charge a price equal to its AC
D)​None of the above

Quizplus · Accepted Answer

In the long-run, a firm must charge a price that is equal to its average cost (AC) if it wants to continue operating. The reason for this is because in the long-run, all costs become variable costs, including fixed costs. Therefore, the firm must cover all of its costs (both variable and fixed) in order to be profitable and continue operating. Charging a price that is equal to its AC will ensure that the firm is covering all of its costs while also earning a profit. Charging a price equal to its AVC or AFC will not be enough to cover all of its costs in the long-run.

​In Order to Continue Operating,in the Long-Run a Firm Must

In Order to Continue Operating,in the Long-Run a Firm Must