Final answer:
Equilibrium indicates that a firm's total revenue is sufficient to cover both variable and fixed costs. Fixed costs are considered sunk and should not affect future decisions, while variable costs can change with production levels.
Step-by-step explanation:
When considering whether equilibrium still covers variable and fixed costs, it's essential to understand the distinction between these two types of costs in the context of a firm's production and revenue. Fixed costs, often seen as sunk costs, are expenditures that have already occurred and cannot be changed. They do not vary with the level of production and should not influence future economic decisions. On the other hand, variable costs are directly related to the firm's level of production and can be altered in the short-term to adjust to changing economic circumstances.
In a state of equilibrium, a firm's total revenue must exceed or be equal to the sum of its variable and fixed costs if it is to break even or make a profit. This equilibrium reflects a balance where the firm's production level is such that the price customers are willing to pay matches the firm's cost structure. Therefore, when a firm is at equilibrium, it implies that both variable and fixed costs are accounted for within the total revenue, which is necessary to maintain business operations without incurring losses .