This graph represents the cost and revenue curves of a firm in a perfectly competitive market. According to the graph shown,if a firm is producing at Q2,and it is identical to others in the market:

Question

This graph represents the cost and revenue curves of a firm in a perfectly competitive market.  According to the graph shown,if a firm is producing at Q2,and it is identical to others in the market:

Quizplus · Accepted Answer

At Q2, the marginal cost of the firm intersects with the marginal revenue, which determines the level of output that maximizes profits. However, the price of the product is equal to the marginal cost, which means that the firm is earning normal profits, or zero economic profits. Therefore, choice C is the best answer. Choices A and D are incorrect because there is no evidence in the graph that suggests that profits are not being maximized or that firms are leaving the market. Choice B is also incorrect because if other firms enter the market, it will increase the supply and lower the price, which will further reduce the economic profits of all firms in the market.

This Graph Represents the Cost and Revenue Curves of a Firm