The following graph shows the costs and revenues of a typical firm operating in a monopolistically competitive industry.

-Refer to the graph above to answer this question.Which of the following statements is correct?

Question

The following graph shows the costs and revenues of a typical firm operating in a monopolistically competitive industry.
 
-Refer to the graph above to answer this question.Which of the following statements is correct?

Quizplus · Accepted Answer

In a perfectly competitive market, firms charge a price equal to the marginal cost, which is where the marginal cost curve intersects the average total cost curve at its minimum point. This is typically represented by price 0B in standard economic graphs. At this price, the firm covers all its costs, including the opportunity cost of capital, which means it earns normal profits but no economic profits. Economic profits are realized when a firm's total revenues exceed its total costs, including both explicit and implicit costs. Since the firm is charging a price that only allows for the recovery of all its costs (including normal profits), it does not make economic profits.

The Following Graph Shows the Costs and Revenues of a Typical