A competitive (price-taking) firm will produce so long as its economic profit is sufficiently above zero to enable the firm to pay the owners of the firm for their time and effort.

Question

Quizplus · Accepted Answer

A competitive (price-taking) firm will produce as long as its price is above its average variable cost, even if its economic profit is zero or negative, to cover its variable costs and possibly some of its fixed costs. Economic profit taking into account the opportunity costs, including the time and effort of the owners, does not have to be above zero for production to continue in the short run.

A Competitive (Price-Taking) Firm Will Produce So Long as Its