Suppose that Magma Motor Company has total revenue of $400,000, fixed costs of $100,000, and variable costs of $200,000. If Magma Motor company is known to be in a perfectly competitive market, which of the following is true?

Question

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In a perfectly competitive market, if a firm is making a profit (total revenue greater than total costs), it signals other firms to enter the market. Magma Motor Company's profit is calculated as total revenue ($400,000) minus total costs (fixed costs of $100,000 plus variable costs of $200,000), which equals $100,000. This profit indicates that firms will enter the market.

Suppose That Magma Motor Company Has Total Revenue of $400,000