Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $10,
A) The firm should produce 31 units.
B) The firm will shut down in the short run.
C) An economic loss will occur.
D) The firm will earn normal profits.

Question

Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $10,
A) The firm should produce 31 units. 
B) The firm will shut down in the short run. 
C) An economic loss will occur. 
D) The firm will earn normal profits.

Quizplus · Accepted Answer

At a market price of $10, the firm's average total cost is greater than $10, indicating that the firm is incurring an economic loss. The firm should continue to produce in the short run as long as the market price covers variable costs, however, it will not earn any profits. Therefore, option C is correct. Option A is incorrect because producing 31 units will still result in economic loss. Option B is incorrect because the firm will continue to produce in the short run as long as the market price covers variable costs. Option D is incorrect because the firm is incurring an economic loss, thus cannot earn normal profits.