Answer to Question #287678 in Microeconomics for Aisha

Question

Does a competitive firm’s price equal its marginal cost in the short run, in the long run, or both? Explain

Answer 1

A competitive firm's price equals its marginal cost in both the short run and the long run. In both the short run and the long run, price equals marginal revenue. The firm should increase output as long as marginal revenue exceeds marginal cost, and reduce output if marginal revenue is less than marginal cost.