1. You overheard two students' conversation about pricing after a class:

Student 1 - We can drop prices in the short run to cover differential variable and fixed costs. But in the long run, prices must cover all variable and fixed costs.

Student 2 - How is that possible? Shouldn't we always cover all our costs, short-term and long-term?

Required:

provide appropriate response to clarify the pricing concept the students are discussing.