Question

Which of the following MUST be true for a firm in a perfectly competitive market in the short run and in the long run?

Answer 1

I don’t see the answer choices you were given, so I’ll state the standard things that MUST hold for a perfectly competitive firm in the short run and in the long run.

Short run (musts)
- The firm is a price taker: P = AR (price equals average revenue).
- Marginal revenue equals price: MR = P = AR.
- If the firm produces, it chooses output where MR = MC (so P = MC at the profit-maximizing output), provided that P ≥ min AVC; if P < min AVC the firm shuts down and produces zero.
- The firm may earn positive, zero, or negative economic profit in the short run (so P need not equal ATC).

Long run (musts)
- Entry and exit drive economic profit to zero: firms earn zero economic profit (normal profit).
- Price equals the minimum of long-run average total cost: P = min LRATC.
- The firm produces where P = MR = MC and that output also coincides with the minimum of ATC (so in long-run equilibrium P = MC = ATC at the ATC minimum).
- Resources are allocated efficiently: P = MC (allocative efficiency) and production occurs at minimum ATC (productive efficiency).

If you have specific multiple-choice options, paste them and I’ll pick which are correct.