If, for a perfectly competitive firm, the price exceeds average total cost:
A) the firm will increase production until average costs are equal to the price.
B) new firms will be attracted into the industry.
C) the firm will undertake non-price competition in order to maintain its advantageous position.
D) the firm will increase production in order to increase profits.

Question

Quizplus · Accepted Answer

When the price exceeds average total cost, it indicates that the firm is making an economic profit. This attracts new firms into the industry, as they seek to take advantage of the profit opportunity.

If, for a Perfectly Competitive Firm, the Price Exceeds Average