Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that Chuck Diesel Burger's minimum average total cost (ATC) is $3.75 and that its minimum average variable cost (AVC) is $2.50. Assume there are no barriers to entry into or exit from the food-truck market. Chuck Diesel Burger will make a positive economic profit if the price is equal to:

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Quizplus · Accepted Answer

In perfect competition, a firm earns a positive economic profit when the price is greater than its minimum average total cost (ATC) or minimum average variable cost (AVC). Since Chuck Diesel Burger's minimum AVC is $2.50, it must cover this cost to continue producing in the short run. Therefore, Chuck Diesel Burger must charge at least $2.50 to cover its variable costs. Additionally, Chuck Diesel Burger must also earn enough to cover its fixed costs, which are represented by the portion of the ATC curve above the AVC curve. Chuck Diesel Burger's minimum ATC is $3.75, so it must earn at least $3.75 to cover its total costs. Since Chuck Diesel Burger's total revenue is greatest at a price of $4.00, it can cover both its variable and fixed costs and earn a positive economic profit of $0.25 per unit sold.

Chuck Diesel Burger Is a Food Truck in Houston, Texas