A firm in a perfectly competitive industry faces the following cost and revenue conditions: ATC = $6; AVC = $3; MR = MC = $5. The firm is

Question

Quizplus · Accepted Answer

The firm is experiencing economic losses since its average variable cost (AVC) is $3 while the market price (MR) of its product is only $5. This means that the firm's revenue is not sufficient to cover both its variable costs and its fixed costs, resulting in a loss of $1 per unit ($5 - $6). Therefore, the best choice is B, which indicates that the firm is experiencing economic losses.

A Firm in a Perfectly Competitive Industry Faces the Following