Equilibrium under perfect competition in short run
Understand the Problem
The question is asking about the concept of equilibrium in a perfectly competitive market during the short run. This involves discussing how firms determine their output levels, pricing, and profits or losses under the conditions of perfect competition.
Answer
Price equals marginal cost, resulting in varied profit levels or losses.
Under perfect competition in the short run, equilibrium occurs where the firm's price equals the marginal cost. Firms can earn normal profit, super-normal profit, or incur a loss, depending on their average costs relative to pricing driven by market demand.
Answer for screen readers
Under perfect competition in the short run, equilibrium occurs where the firm's price equals the marginal cost. Firms can earn normal profit, super-normal profit, or incur a loss, depending on their average costs relative to pricing driven by market demand.
More Information
In the short run, firms might not be able to adjust all production factors, resulting in a situation where they can earn different profit levels based on costs relative to market price, dictated by demand.
Tips
A common mistake is assuming that firms can adjust all costs in the short run, when in reality, some costs are fixed.
Sources
- Equilibrium under Perfect Competition: Perfectly Competitive Market - toppr.com
- Understanding Short Run Competitive Equilibrium - economics.utoronto.ca
- Perfect Competition in the Short Run: Supply Curves & Profit - studypug.com
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