A perfectly competitive firm is breaking even. In the short run it should ________. In the long run it should ________.
A) shut down; expand
B) produce where MC = MR; leave the industry
C) produce where MC = MR; keep the same production level
D) shut down; exit the industry

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm breaking even should continue producing where marginal cost (MC) equals marginal revenue (MR) to cover its variable costs and some of its fixed costs. In the long run, if it's breaking even, it means it's covering all its costs, including the opportunity cost of capital, so there's no incentive to leave or change production levels.

A Perfectly Competitive Firm Is Breaking Even