Assume that at the current market price,a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs.Which of the following statements applies to this firm?

Question

Quizplus · Accepted Answer

Since total revenue equals total cost, the firm is earning zero economic profit (i.e. breaking even). In a perfectly competitive market, firms can continue to operate in the short run and earn zero economic profit. Therefore, the firm should continue to operate. Option A is incorrect because if the firm shut down, it would not even earn zero economic profit. Option B is incorrect because the firm can continue to operate in the short run without minimizing losses since it is already breaking even. Option D is incorrect because increasing explicit costs would increase total costs and reduce economic profit, which is zero.

Assume That at the Current Market Price,a Perfectly Competitive Firm's