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Question
Microeconomics
Posted 2 months ago

Which of the following best describes what is true for a firm to be willing to produce in both the short run and the long run?

Choose 1 answer:
(A) P=AVCP=A V C in the short run; P<ATCP<A T C in the long run
(B) P<AVCP<A V C in the short run; PATCP \leq A T C in the long run
(c) P<AVCP<A V C in the short run; PATCP \geq A T C in the long run
(D) PAVCP \geq A V C in the short run; PATCP \leq A T C in the long run.
(E) PAVCP \geq A V C in the short run; PATCP \geq A T C in the long run.
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Answer from Sia
Posted 2 months ago
Solution
a
Short-Run Production Decision: In the short run, a firm will produce if the price (PP) is at least equal to the average variable cost (AVCAVC). This ensures that the firm can cover its variable costs and contribute to fixed costs
b
Long-Run Production Decision: In the long run, a firm will produce if the price (PP) is at least equal to the average total cost (ATCATC). This ensures that the firm can cover all its costs, including both fixed and variable costs
c
Analysis of Options: - Option (A): P=AVCP = AVC in the short run; P<ATCP < ATC in the long run. This implies the firm is not covering all costs in the long run, which is not sustainable. - Option (B): P<AVCP < AVC in the short run; PATCP \leq ATC in the long run. This implies the firm will not produce in the short run. - Option (C): P<AVCP < AVC in the short run; PATCP \geq ATC in the long run. This also implies the firm will not produce in the short run. - Option (D): PAVCP \geq AVC in the short run; PATCP \leq ATC in the long run. This implies the firm can cover variable costs in the short run and at least break even in the long run. - Option (E): PAVCP \geq AVC in the short run; PATCP \geq ATC in the long run. This implies the firm can cover all costs in both the short run and long run
Answer
(E) PAVCP \geq AVC in the short run; PATCP \geq ATC in the long run.
Key Concept
Conditions for Firm Production in Short Run and Long Run
Explanation
For a firm to be willing to produce in both the short run and the long run, it must cover its average variable costs in the short run and its average total costs in the long run. This ensures the firm can sustain operations and be profitable.

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