A competitive firm in the long run must realize a price that covers its average cost.

Question

Quizplus · Accepted Answer

In the long run, a competitive firm must earn enough revenue to cover its total cost, which includes both fixed and variable costs. If the price of the product is lower than the average cost, the firm will incur losses and will either have to increase its price or leave the market in the long run. Therefore, the competitive firm must set a price that covers its average cost to stay in the market and earn profits in the long run.

A Competitive Firm in the Long Run Must Realize a Price