Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?
A)The firm is using the fewest resources possible to produce each unit of output.
B)The firm is practicing marginal cost pricing.
C)The price is a reflection of the highest-valued good that could have been produced with the resources the firm used for the last unit it produced.
D)The firm should leave this market in an effort to earn economic profits.

Question

Refer to Figure 23.5 for a perfectly competitive firm.Which of the following is not true for this firm at a price of $200?
A)The firm is using the fewest resources possible to produce each unit of output. 
B)The firm is practicing marginal cost pricing. 
C)The price is a reflection of the highest-valued good that could have been produced with the resources the firm used for the last unit it produced. 
D)The firm should leave this market in an effort to earn economic profits.

Quizplus · Accepted Answer

In a perfectly competitive market, the firm will earn zero economic profits in the long run. If the firm is earning economic profits, other firms will enter the market, increasing competition and driving down prices, eroding those profits. As such, it is not rational for the firm to leave the market when it is earning positive economic profits at a price of $200.