When economic profits are zero for a firm in a perfectly competitive market,it means that:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms aim to produce where price equals minimum average total cost in order to maximize their profits. When economic profits are zero, it indicates that the firm is earning only sufficient revenue to cover its costs, and is not making any extra profit. Therefore, the price that the firm is receiving is just enough to cover its minimum average total cost, hence option B is correct. Option A is incorrect since it is possible for average total costs to be positive even when economic profits are zero. Option C is also incorrect since average variable costs being minimized does not necessarily mean that economic profits are zero. Option D is incorrect since MR being equal to AVC does not indicate anything about economic profits as this relation only deals with marginal and average costs.

When Economic Profits Are Zero for a Firm in a Perfectly