Question

Short run equilibrium of a firm under perfect competition definition

Answer 1

Hey dear ,



•••We shall now specifically discuss the ‘short-run’ equilibrium of a firm under perfect competition. We assume that the goal of the firm is to earn the maximum profit. Therefore, the point of profit maximisation is the firm’s equilibrium point. By the profit of the firm, we shall mean the profit in excess of normal profit which may also be called the pure profit or the economic profit.

We know that, in the short run, the firm may increase the quantity produced of its output (q) by increasing the use of the variable inputs. On the other hand, the firm may change, in the long run, the use of all the inputs, variable and fixed, by required amounts to increase its q.

That is why the short-run and long-run cost situations are not the same. The equilibrium of the firm in the short-run cost situation is called the short-run equilibrium and that in the long run cost situation is called the long-run equilibrium.••••


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