If firms are earning zero economic profits, they must be producing at an output level at which

Question

Quizplus · Accepted Answer

If a firm is earning zero economic profit, it means that its total revenue is equal to its total costs. At the output level where economic profit is zero, the firm's price will be equal to its average total cost. This is because average total cost includes both variable and fixed costs, so if the firm can cover all of its costs (including fixed costs) with its revenue, it is earning zero economic profit. At this output level, the firm is just earning enough to cover all of its costs, with nothing left over as profit.

If Firms Are Earning Zero Economic Profits, They Must Be