If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price is less than the firm's average total cost, the firm is _______.

Question

Quizplus · Accepted Answer

When the market price is less than the firm's average total cost, the firm is incurring an economic loss. While producing at the output level where marginal revenue is equal to marginal cost ensures that the firm is producing at the most efficient level, it does not guarantee profitability. In a perfectly competitive market, firms earn only a competitive return, which means that they earn enough revenue to cover their costs but nothing more. If the market price falls below a firm's average total cost, it is not covering all of its costs and is therefore incurring a loss.

If a Perfectly Competitive Firm Is Producing at the Output