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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

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.

To determine
The competitive firm’s price that is equal to the minimum of the average total cost in the short run and long run or both.

Explanation

In the long run, firms are operating at the lower point of average total cost. Since the product price in the long run is equal to average total cost, the price is equal to minimum the average total cost. In the short run, the firm is operating if the price is greater than or equal to average variable cost. If the price is more than the average total cost, then it earns an economic profit and if ...

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