Answer to Question #287681 in Microeconomics for Aish

Question

Does a competitive firm’s price equal the minimum of its average total cost in the short run, in the long run, or both? Explain.

Answer 1

The firm's price equals the minimum of its average total cost only in the long run. In the short run, price may be greater than average total cost, in which case the firm is making profits, or price may be less than average total cost, in which case the firm is making losses.