Figure 13-1
Suppose that a firm in a competitive market has the following cost curves:
-Refer to Figure 13-1.If the market price is $5.00,the firm will earn

Question

Figure 13-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 13-1.If the market price is $5.00,the firm will earn

Quizplus · Accepted Answer

At a market price of $5.00, the firm's marginal cost intersects with the market price at the output level of 4 units. At this output level, the firm's total cost is $20.00 ($5.00 x 4 units), while total revenue is $20.00. Therefore, the firm's economic profit is zero. However, since the price is greater than the average variable cost ($3.00), the firm can cover its variable costs and continue to operate in the short run, albeit with negative economic profits. Therefore, the best choice is option B.

Figure 13-1 Suppose That a Firm in a Competitive Market Has the Has