Match the situation of a firm under perfect competition in List-I wit…

Match the situation of a firm under perfect competition in List-I with the outcome in List-II:

List-I		List-II
(A)	Short run: price below the minimum of AVC	(I)	Leaves the market; its profit is zero
(B)	Long run: price below the minimum of LRAC	(II)	Earns only normal profit
(C)	Short run: price above the minimum of AVC but below the minimum of SAC	(III)	Produces zero output; its loss equals TFC
(D)	Long run: price equal to the minimum of LRAC	(IV)	Keeps producing, though its profit is below normal profit

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A) - (III), (B) - (I), (C) - (IV), (D) - (II)

What a firm does depends on how the price compares with AVC in the short run and with LRAC in the long run.

List-I	List-II	Reason
(A) Short run: price below the minimum of AVC	(III) Produces zero output; its loss equals TFC	Producing would lose more than TFC. At zero output, profit is −TFC.
(B) Long run: price below the minimum of LRAC	(I) Leaves the market; its profit is zero	A firm that shuts down in the long run has zero profit, so it exits.
(C) Short run: price above the minimum of AVC but below the minimum of SAC	(IV) Keeps producing, though its profit is below normal profit	Price covers AVC, so it produces; in the short run a firm may produce with less than normal profit.
(D) Long run: price equal to the minimum of LRAC	(II) Earns only normal profit	Minimum LRAC is the break-even point.

NCERT (2026-27): “Case 1: Price must be greater than or equal to AVC in the short run … Since output is zero, TR and TVC are zero as well. Hence, the firm’s profit at zero output is equal to – TFC. But, the area of rectangle OpAq1 is strictly less than the area of rectangle OEBq1. Hence, the firm’s profit at q1 is [(area EBAp)-TFC], which is strictly less than what it obtains by not producing at all. So, the firm will choose not to produce at all, and exit from the market.”

“4.3.3 Condition 3 … But, in the long run set-up, a firm that shuts down production has a profit of zero. Again, the firm chooses to exit in this case.”

“4.4.4 The Normal Profit and Break-even Point … In the long run, a firm does not produce if it earns anything less than the normal profit. In the short run, however, it may produce even if the profit is less than this level. The point on the supply curve at which a firm earns only normal profit is called the break-even point of the firm. The point of minimum average cost at which the supply curve cuts the LRAC curve (in short run, SAC curve) is therefore the break-even point of a firm.”