The following table applies to a purely competitive industry composed of 100 identical firms. $\begin{array}{lcl}
Quantity&&Quantity\
Demanded &Price &Supplied\
\hline
400,000 & \$ 5 & 800,000 \
500,000 & 4 & 700,000 \
600,000 & 3 & 600,000 \
700,000 & 2 & 500,000 \
800,000 & 1 & 400,000
\end{array}$ Refer to the table.If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit,each must have an average total cost of:
A) $2.
B) $3.
C) $4.
D) $5.

Question

Quizplus · Accepted Answer

In a purely competitive market, firms maximize profit where price equals marginal cost, and earning only a normal profit implies that price also equals average total cost. The equilibrium occurs where quantity demanded equals quantity supplied, which is at a price of $3 (600,000 units demanded and supplied). Therefore, each firm must have an average total cost of $3 to be earning only a normal profit at this equilibrium point.

The Following Table Applies to a Purely Competitive Industry Composed