If firms are producing at a profit-maximizing level of output where the price exceeds the average total cost:

Question

Quizplus · Accepted Answer

If the price exceeds the average total cost, firms are earning a profit. Economic profits are positive when a firm is earning a profit that exceeds the opportunity cost of the resources used in production. Therefore, choice B is the correct answer. Choices A and C are incorrect because positive accounting profits do not necessarily indicate economic profits and the presence of profits in the short run does not necessarily cause other firms to exit the market. Choice D is incorrect because if firms are earning a profit, they have no incentive to exit the market.

If Firms Are Producing at a Profit-Maximizing Level of Output