Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7. If the market price is P1,

Question

Figure 12-7  Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7. If the market price is P1,

Quizplus · Accepted Answer

At price P1, the firm's average total cost (ATC) is greater than the price. This means that the firm is incurring a loss because it costs more to produce the goods than they are able to sell it for. Therefore, the correct choice is C. The firm cannot make a profit by increasing demand, as it is operating in a perfectly competitive market where they have no control over the market price. The firm also cannot raise its price to P2 and break even, as this will cause them to lose customers to other firms who are still selling at the same lower price.

Figure 12-7 Figure 12-7 Illustrates the Cost Curves of a Perfectly