For a firm to earn profits in the short run, price must be greater than both the marginal cost and average variable cost.

For a firm to earn profits in the short run, price must be greater than both the marginal cost and average variable cost.

True or False

Explanation
A firm can earn profits only if the price is above the average variable cost. But firms will supply goods only at a price equal to or greater than the marginal cost. This means that the price must be greater than both the marginal cost and average variable costs for the firm to earn profits.