Figure 13-6
-Refer to Figure 13-6.The firm represented in the diagram
A) makes zero economic profit.
B) makes zero accounting profit.
C) should exit the industry.
D) should expand its output to take advantage of economies of scale.

Question

Figure 13-6 
-Refer to Figure 13-6.The firm represented in the diagram
A) makes zero economic profit. 
B) makes zero accounting profit. 
C) should exit the industry. 
D) should expand its output to take advantage of economies of scale.

Quizplus · Accepted Answer

The firm is producing where marginal cost (MC) equals marginal revenue (MR), which is the profit-maximizing level of output. At this level of output, the firm is earning normal profit, meaning it is covering all of its explicit and implicit costs, but it is not earning any economic profit. Therefore, choice A is correct. Choice B is incorrect because the firm is earning normal profit, which includes accounting profit. Choice C is also incorrect because the firm is covering all its costs and is not incurring losses. Choice D is also incorrect because the diagram does not provide any information on economies of scale, so we cannot assume that the firm should expand output based solely on the diagram.

Figure 13-6 -Refer to Figure 13-6.The Firm Represented in the Diagram