If profit is as high as possible and normal economic profits are being earned, which of the following is true? Choose 1 answer: (A) $P=A T C(Q)$ and $M R(Q)M C(Q)$ (B) $PA T C(Q)$ and $M R(Q)=M C(Q)$ (C) $P=A T C(Q)$ and $M R(Q)=M C(Q)$ (D) $PA T C(Q)$ and $M R(Q)M C(Q)$ (E) $P

Question

If profit is as high as possible and normal economic profits are being earned, which of the following is true? Choose 1 answer: (A) $P=A T C(Q)$ and $M R(Q)>M C(Q)$ (B) $P>A T C(Q)$ and $M R(Q)=M C(Q)$ (C) $P=A T C(Q)$ and $M R(Q)=M C(Q)$ (D) $P>A T C(Q)$ and $M R(Q)>M C(Q)$ (E) $P

Accepted Answer

∻Solution∻ ‖ a ⋮ Profit Maximization Condition: In a perfectly competitive market, profit maximization occurs where marginal revenue (MR) equals marginal cost (MC), i.e., $MR(Q) = MC(Q)$. ‖ ‖ b ⋮ Economic Profits: Economic profits are positive when price (P) exceeds average total cost (ATC), i.e., $P > ATC(Q)$. When $P = ATC(Q)$, the firm is earning normal profits, which means zero economic profits. ‖ ∻Answer∻ ⚹ (B) $P > ATC(Q)$ and $MR(Q) = MC(Q)$ ⚹ ∻Key Concept∻ ⚹ Profit Maximization and Economic Profits ⚹ ∻Explanation∻ ⚹ For profit maximization with normal economic profits, the price must be greater than average total cost, and marginal revenue must equal marginal cost. ⚹◊What is the relationship between Marginal Revenue and Marginal Cost in profit maximization and normal economic profits in a competitive market?⍭ Generate me a similar question◊

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