Q.Explain the short-run equilibrium of a firm under perfect competition. Can such a firm earn super-normal profit in the short run?

In the short run a competitive firm sets output where MC equals the given market price, and whether it earns a profit or a loss depends on where its average cost sits at that output.

In the short run, the number of firms in a perfectly competitive industry is fixed — there is not enough time for new firms to enter or existing firms to exit. Each existing firm treats the market price (determined by the intersection of the industry's short-run demand and supply) as given, and chooses the output at which its own marginal cost equals this price:

This rule fixes the firm's equilibrium output, but it says nothing yet about whether the firm makes a profit. That depends on where the firm's short-run average-cost (AC) curve happens to sit at that output level, compared with the price:

• If $P > AC$ at the equilibrium output, the firm earns a super-normal (abnormal) profit — the gap between price and average cost, multiplied by output.
• If $P = AC$, the firm earns only a normal profit (its cost curves already include a normal return to the entrepreneur).
• If $AVC < P < AC$, the firm makes a loss but continues to produce in the short run because it still covers its variable costs and part of its fixed costs.
• If $P < AVC$, the firm shuts down immediately, since continuing to produce would add to its losses.

So yes, a firm under perfect competition can and often does earn a super-normal profit in the short run — it is only in the long run, once free entry allows new firms to respond to that profit, that abnormal profit is competed away.

A common error is assuming a firm under perfect competition always earns only normal profit — that result holds strictly in the long run, not the short run.