Suppose a perfectly competitive firm is in the following situation: P = $7; output = 4,000; ATC = $8; AVC = $6; and MC = $8. Which statement accurately describes the firm's and the market's situation?

Question

Quizplus · Accepted Answer

The firm incurs losses because the price ($7) is less than the average total cost ($8), indicating it cannot cover all its costs in the short run, but it can cover its average variable costs ($6), suggesting the market is in a short-run equilibrium, not a long-run equilibrium.

Suppose a Perfectly Competitive Firm Is in the Following Situation