In a perfectly competitive market, if price is greater than average total cost at the level of output where marginal cost equals marginal revenue

Question

Quizplus · Accepted Answer

If the price is greater than the average total cost (P>ATC) at the level of output where marginal cost equals marginal revenue (MC=MR), the firm is producing at a level where it is maximizing its profit. Therefore, the firm is earning an economic profit greater than zero. In the long run, other firms may enter the market and increase the supply, causing the price to decrease and the profits to decrease as well. However, in the short run, the firm is earning positive profits.

In a Perfectly Competitive Market, If Price Is Greater Than