Figure 13-11

-Refer to Figure 13-11.The firm represented in the diagram
A)makes zero economic profit.
B)makes zero accounting profit.
C)should exit the industry.
D)should expand its output to take advantage of economies of scale.

Question

Figure 13-11
 
-Refer to Figure 13-11.The firm represented in the diagram
A)makes zero economic profit. 
B)makes zero accounting profit. 
C)should exit the industry. 
D)should expand its output to take advantage of economies of scale.

Quizplus · Accepted Answer

The firm represented in the diagram is producing where marginal revenue equals marginal cost, which means it is earning normal profit (equal to its opportunity cost of capital). Therefore, it is not making any economic profit, but it is making enough to cover its explicit (accounting) costs. There is no need for the firm to exit the industry or expand output because it is already at its optimal level of production.

Figure 13-11 -Refer to Figure 13-11.The Firm Represented in the Diagram