Asksia AI LOGO

Sia

Question
Macroeconomics
Posted 3 months ago

If a firm in a perfectly competitive market is earning normal economic profits, which of the following is true?

Choose 1 answer:
(A) P=ATC=MC=MRP=A T C=M C=M R
(B) P>ATCP>A T C and MC=MRM C=M R
(C) P<ATCP<A T C and MC=MRM C=M R
(D) P<MRP<M R and MC>ATCM C>A T C
(E) P>MR,P>ATCP>M R, P>A T C, and MC=MRM C=M R
Sign in to unlock the answer
Answer from Sia
Posted 3 months ago
Solution
a
Normal Economic Profits: In a perfectly competitive market, normal economic profits occur when total revenue equals total costs, including opportunity costs. This implies that the firm is covering all its costs, including a normal return on investment
b
Price and Average Total Cost Relationship: When a firm is earning normal economic profits, price equals average total cost (P=ATCP = ATC), because the firm is covering all its costs, including the opportunity cost of capital
c
Marginal Cost and Marginal Revenue Relationship: In a perfectly competitive market, a firm maximizes profit by producing up to the point where marginal cost equals marginal revenue (MC=MRMC = MR). This is the profit-maximizing rule for a perfectly competitive firm
d
Correct Answer Choice: Combining the information from steps b and c, the correct answer choice must show that P=ATCP = ATC and MC=MRMC = MR
Answer
(A) P=ATC=MC=MRP = ATC = MC = MR
Key Concept
Normal Economic Profits in Perfect Competition
Explanation
In a perfectly competitive market, a firm earns normal economic profits when the price is equal to the average total cost and the marginal cost is equal to the marginal revenue.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Upgrade to Asksia Pro

Join a AskSia's Pro Plan, and get 24/7 AI tutoring for your reviews, assignments, quizzes and exam preps.

Unlimited chat query usages
Strong algorithms that better know you
Early access to new release features
Study Other Question