Suppose a perfectly competitive firm is in the following situation: P = $9; output = 4,000; ATC = $8; AVC = $6; and MC = $9. Which statement accurately describes the firm's and the market's situations?

Question

Quizplus · Accepted Answer

The firm earns an economic profit because the price ($9) is greater than the average total cost ($8), indicating that the firm is making more than its total costs, including a normal profit. The market is in a short-run equilibrium because firms are still adjusting to market conditions, and the presence of economic profits suggests that new firms may enter the market in the long run, driving down prices and profits until a new long-run equilibrium is reached.

Suppose a Perfectly Competitive Firm Is in the Following Situation