Which of the following suggests that a competitive firm earns zero economic profits?
A) P = MC ATC
B) P MC = ATC
C) P = MC = ATC
D) P MC ATC

Question

Which of the following suggests that a competitive firm earns zero economic profits?
A) P = MC > ATC
B) P > MC = ATC
C) P = MC = ATC
D) P > MC > ATC

Quizplus · Accepted Answer

In the long run, a competitive firm will earn zero economic profits when the price (P) equals the marginal cost (MC) which also equals the average total cost (ATC). This occurs at the minimum point of the average total cost curve, which represents the efficient scale for production. Therefore, option C (P = MC = ATC) is the right answer. Options A, B, and D all suggest that the firm is making either positive or negative economic profits.

Which of the Following Suggests That a Competitive Firm Earns