Table 59.1 Summary of the Perfectly Competitive Firm’s Profitability and Production Conditions

Profitability condition (minimum ATC = break-even price) Result
P > minimum ATCFirm profitable. Entry into industry in the long run.
P = minimum ATCFirm breaks even. No entry into or exit from industry in the long run.
P < minimum ATCFirm unprofitable. Exit from industry in the long run.
Production condition (minimum AVC = shut-down price) Result
P > minimum AVCFirm produces in the short run. If P < minimum ATC, firm covers variable cost and some but not all of fixed cost. If P > minimum ATC, firm covers all variable cost and fixed cost.
P = minimum AVCFirm indifferent between producing in the short run or not. Just covers variable cost.
P < minimum AVCFirm shuts down in the short run. Does not cover variable cost.