In the short run,a perfectly competitive firm produces output and earns an economic profit if:

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm will produce output where marginal cost (MC) equals price (P). If the price is greater than average total cost (ATC), then the firm will earn an economic profit because the revenue from selling the output is greater than the cost of producing it. Therefore, option A is correct. Option B is incorrect because if P = ATC, the firm is only breaking even and not earning an economic profit. Option C is incorrect because if P < MC, the firm would be better off not producing anything at all, since the revenue from selling the output would not cover the cost of producing it. Option D is incorrect because if P < ATC, the firm would be operating at a loss and not earning an economic profit.

In the Short Run,a Perfectly Competitive Firm Produces Output and Earns