At the profit-maximizing output level P = MC, if P AC then firms can earn above-normal profit, causing entry into the industry.

Question

At the profit-maximizing output level P = MC, if P > AC then firms can earn above-normal profit, causing entry into the industry.

Quizplus · Accepted Answer

If the price is above the average cost (AC), the firm is earning a price greater than its cost per unit of production, allowing it to earn a profit. This profit signals to other firms that there is an opportunity to earn above-normal profits in the industry, leading to entry into the industry.

At the Profit-Maximizing Output Level P = MC, If P