Figure 11-6
-Refer to Figure 11-6.The firm represented in the diagram

Question

Figure 11-6 
-Refer to Figure 11-6.The firm represented in the diagram

Quizplus · Accepted Answer

The firm represented in the diagram is producing where its average total cost (ATC) is equal to the market price (P). At this level of output, the firm is making only normal profit, which means it is covering all its costs including opportunity costs. Therefore, it is making zero economic profit. Option B is incorrect because the firm is making normal profit, which means it is covering all its costs including accounting costs. Option C is incorrect because the firm is earning normal profit and can continue to operate as long as it covers all its costs including opportunity costs. Option D is incorrect because the diagram indicates that the firm is already producing at its minimum efficient scale, and expanding its output further may actually increase its ATC and reduce its profit.

Figure 11-6 -Refer to Figure 11-6.The Firm Represented in the Diagram