Which of the following describes a short-run equilibrium that is not also a long-run equilibrium in a perfectly competitive market?

• A. The market price is below the minimum average variable cost, causing all firms to shut down immediately.
• B. Firms are incurring losses, and some have already exited the market.
• C. All firms are earning zero economic profit and no firms wish to enter or exit the market.
• D. Firms are earning positive economic profits, but new firms have not yet entered the market.

Answer: (D)

Verified step by step guidance

1. Understand the difference between short-run and long-run equilibrium in a perfectly competitive market. In the short run, firms can earn positive, zero, or negative economic profits because the number of firms is fixed. In the long run, free entry and exit of firms drive economic profits to zero.
2. Identify the conditions for long-run equilibrium: firms earn zero economic profit, meaning price equals the minimum point of the average total cost (ATC) curve, and no firms want to enter or exit the market.
3. Analyze the given options to see which describes a situation where firms earn positive economic profits but the market has not yet adjusted through entry or exit of firms. This situation can only occur in the short run because, in the long run, positive profits attract new firms, increasing supply and lowering the price.
4. Recognize that if firms are earning positive economic profits and new firms have not yet entered, the market is in short-run equilibrium but not long-run equilibrium, since the entry of new firms will eventually eliminate these profits.
5. Conclude that the correct description of a short-run equilibrium that is not a long-run equilibrium is when firms are earning positive economic profits but new firms have not yet entered the market.