If a perfectly competitive firm in the short run is producing where P = ATC = MC,
A) on the downward-sloping portion of its demand curve.
B) at its profit-maximizing output level.
C) earning economic profits.
D) incurring losses.
E) obliged to shut down.

Question

Quizplus · Accepted Answer

When a perfectly competitive firm is producing where P = ATC = MC in the short run, it is at its profit-maximizing output level. This is because at this point, the firm is producing the output level where marginal revenue (which is equal to price in a perfectly competitive market) is equal to marginal cost, resulting in maximum profits. If the firm was on the downward-sloping portion of its demand curve, it would not be producing where P = MC and therefore would not be maximizing profits. The firm in this scenario could be earning economic profits, breaking even, or incurring losses depending on the level of its ATC. It is not obliged to shut down as long as it is covering its variable costs.

If a Perfectly Competitive Firm in the Short Run Is