...is minimized. Explain? Here's the answer:
False. In the long run, under perfect competition, firms will produce where long-run average costs are minimized. In the long-run, the firm will have adjusted its mix of capital and labor so that average costs are minimized. In addition, entry and exit will force price to adjust so it is close to minimum average cost. In the short run, however, the firm might not be producing the optimal long-run output. For example, if there are any fixed factors of production, the firm does not always produce where long-run average cost is minimized. Also, in the short run the firm may be producing at a point where price equals marginal cost at a quantity that is different than that which corresponds to minimum long-run average cost.
However, I thought it was false because firms always want to maximize profits. Therefore it should choose the output at which price is equal to long run marginal cost?
False. In the long run, under perfect competition, firms will produce where long-run average costs are minimized. In the long-run, the firm will have adjusted its mix of capital and labor so that average costs are minimized. In addition, entry and exit will force price to adjust so it is close to minimum average cost. In the short run, however, the firm might not be producing the optimal long-run output. For example, if there are any fixed factors of production, the firm does not always produce where long-run average cost is minimized. Also, in the short run the firm may be producing at a point where price equals marginal cost at a quantity that is different than that which corresponds to minimum long-run average cost.
However, I thought it was false because firms always want to maximize profits. Therefore it should choose the output at which price is equal to long run marginal cost?