A perfectly competitive firm is definitely earning an economic profit when:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price. Therefore, the firm's profit maximizing output level will occur where its marginal cost (MC) equals the market price (P). If P is greater than the firm's average total cost (ATC), then the firm will be earning an economic profit (P > ATC). Therefore, option B is the correct choice. Option A may or may not result in economic profit since MR could be greater or less than P. Option C is not necessarily profitable as the firm may have high costs associated with producing the good. Option D indicates a loss, not a profit.

A Perfectly Competitive Firm Is Definitely Earning an Economic Profit