Question
What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
Solution
The following three conditions must hold in the short-run.
(i) Market price (P) is equal to marginal cost (P = MC).
(ii) Marginal cost is non-decreasing and
(iii) In short-run market price (P) must be greater than or equal to average cost. However in the long-run market price (P) must be greater than or equal to average variable cost.
P ≥ AVC
