In the short run, a perfectly competitive firm is producing an output and receiving normal profit?
My study group has been at odds with each other over this question. We have the following to select from:
a. P>AC
b. AVC<P<AC
c. P=AC
d. P=AVC
How can this be determined?
Answer:
In the long run Average revenue = Average total costs. That is the Margianl Revenue=Average Revenue curve slants downwards to pass through the Average total cost line. In the short run it was parallel ot the Qunatity axis x-axis. So this satisfies your premise.
a. P>AC
if the firm is perfectly competetive and is receiving normal profits..the short run will be exactly as a long run...i.e. P=AC. if P>AC firm would be making supernormal profits.
ps. not the clearest of questions and it can mean something different , were there answer can be A.
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a. P>AC
b. AVC<P<AC
c. P=AC
d. P=AVC
How can this be determined?
Answer:
In the long run Average revenue = Average total costs. That is the Margianl Revenue=Average Revenue curve slants downwards to pass through the Average total cost line. In the short run it was parallel ot the Qunatity axis x-axis. So this satisfies your premise.
a. P>AC
if the firm is perfectly competetive and is receiving normal profits..the short run will be exactly as a long run...i.e. P=AC. if P>AC firm would be making supernormal profits.
ps. not the clearest of questions and it can mean something different , were there answer can be A.
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