If a profit-maximizing firm in a perfectly competitive market is making an economic profit,then it must be producing a level of output where

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a profit-maximizing firm will produce output up to the point where price equals marginal cost (P = MC). If the firm is making an economic profit, this implies that the price (and thus marginal cost at the profit-maximizing output) is greater than the average total cost (ATC) at that level of output. This is because economic profit occurs when total revenue exceeds total costs, and on a per-unit basis, this means price (revenue per unit) is greater than average total cost. Therefore, for economic profit to exist, marginal cost must be greater than average total cost at the profit-maximizing output level.

If a Profit-Maximizing Firm in a Perfectly Competitive Market Is