In which one of the following situations will a perfectly competitive firm make an economic profit?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms will continue to enter the market until economic profits are driven to zero in the long run. This means that in the long run, a perfectly competitive firm will earn zero economic profit. However, in the short run, a firm can earn an economic profit if the market price is above its average total cost (ATC) and marginal revenue (MR) is greater than average total cost (MR>ATC). Therefore, the only situation in which a perfectly competitive firm can earn an economic profit is when MR>ATC.

In Which One of the Following Situations Will a Perfectly