If the demand curve facing the Acme Awl Company is tangent to its average total cost curve, all of the following statements are true except one.Which is the exception?
A)Economic profit is zero.
B)A normal profit exists.
C)Marginal cost must exceed marginal revenue.
D)Acme has excess capacity.
E)Firms have no incentive to enter or leave this industry.

Question

Quizplus · Accepted Answer

If the demand curve is tangent to the average total cost curve, the firm is operating at its break-even point, where economic profit is zero and a normal profit exists. Furthermore, if the firm has excess capacity, it can increase production without incurring additional costs, which is a characteristic of the break-even point. However, if marginal cost exceeds marginal revenue, the firm would not produce at the break-even point, as it would be incurring losses. Thus, statement C is false. Therefore, the correct answer is C.

If the Demand Curve Facing the Acme Awl Company Is