Answer to Question #298547 in Microeconomics for garg

Question

Explain why in the short run, the equilibrium price of the perfectly competitive firm is

equal to marginal cost and in the long run, equilibrium price is equal to marginal cost as well as

average cost of the firm.

Answer 1

During short run period some cost are fixed while others are variable. During short run a firm will only produce if it's price equals average variable cost or is higher than average variable cost. If price is more than average total cost the firm will be earning supernormal profits

During the long run there are no fixed variable of production.long run equilibrium point for a perfect competition market occurs where price is equal to marginal cost and average cost as well