Question

Explain the true or false statement: In the long run firms in competitive markets can have different short run average cost curves.

Answer 1

Ans. False, this is because in long run, the firms in the perfectly competitive market produce where the long run average cost is minimum so that each firm only earns a normal profit. At minimimum point of the long run average cost, the short run average cost, short run marginal cost and long run marginal cost, all are equal and as each firm has to have same long run average cost in long run because all the firms are price takers, so, each firm must have the same short run average cost curve also which is minimum at the efficient scale and is tangent to the price level.

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