The zero-profit price for a firm in perfect competition:
A)is a price just sufficient to cover fixed cost.
B)is at the point where total revenue from sales is at its minimum level.
C)occurs at the point where marginal and average cost are equal.
D)occurs at the point where marginal cost is at its minimum level.
E)is not correctly described by any of the above.

Question

Quizplus · Accepted Answer

In perfect competition, the firms have no market power to influence the price, so they are price takers. The firm's objective is to maximize profit or minimize losses, and it can achieve this by producing at a level where marginal cost equals marginal revenue (MC=MR). In perfect competition, where price equals marginal revenue (P=MR), MC=MR=P. Therefore, the zero-profit price occurs at the point where the firm's average total cost (ATC) is equal to the price, which is also where MC=ATC=P.

The Zero-Profit Price for a Firm in Perfect Competition