Final answer:
The incorrect statement is that firms will be operating at a level of output where price equals AVC in the short run. In reality, firms aim to operate where price equals marginal cost in the short run, and adjust to where price equals average cost in the long run, for long-run equilibrium.
Step-by-step explanation:
About a competitive market:
The statement that is not correct about a competitive market is 'd. Firms will be operating at a level of output where price equals AVC in the short run.' In a competitive market, firms operate where the price equals the marginal cost (MC) and average variable cost (AVC) only in the short run if they cannot cover their average total cost (ATC) but still cover their AVC. In the long run, to ensure survival and no economic profits or losses, firms must operate where price equals average cost (AC). Here is an explanation:
- Firms will operate at their efficient scale in the long run, meaning they produce at a level where P = MR = MC and P = AC, where all economic profits are zero.
- In the short run, the number of firms may be fixed due to high entry barriers or costs.
- The number of firms can adjust to changing market conditions in the long run, either entering or exiting the market based on profitability.
In sum, firms aim for an output level where P = MR = MC in the short run, and adjust accordingly for long-run equilibrium to achieve zero economic profits.