In the short run, a firm makes zero profits if it produces the quantity at which: A)Price - Average Cost 0. D)Price = (TR / Q + TC / Q) × Q.

Question

In the short run, a firm makes zero profits if it produces the quantity at which:
A)Price - Average Cost < 0.
B)Price - Average Cost = 0.
C)Price - Average Cost> 0.
D)Price = (TR / Q + TC / Q) × Q.

Quizplus · Accepted Answer

In the short run, a firm makes zero profits when it produces the quantity at which price is equal to average cost (P=AC). This is because at this level of output, the firm covers all of its costs including both variable and fixed costs, but earns no excess profit. If the firm produces at a quantity where price is less than average cost (P<AC), then it will incur losses. If the firm produces at a quantity where price is greater than average cost (P>AC), then it will earn profits. Therefore, the correct answer is B.

In the Short Run, a Firm Makes Zero Profits If