The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3 Refer to Figure 9.3 and identify the price level at which the firm earns only normal profit.

Question

The figure given below shows the revenue and the cost curves of a perfectly competitive firm. Figure 9.3  Refer to Figure 9.3 and identify the price level at which the firm earns only normal profit.

Quizplus · Accepted Answer

Normal profit is earned where the total revenue (TR) is equal to total cost (TC). In the given graph, the break-even point or normal profit is where the ATC curve intersects with the demand curve, which is at a price of $10. At this price level, the firm is earning normal profit as the quantity produced (Q) equals the minimum efficient scale of production (MES) and the ATC is equal to the price. Any price level above $10 will generate a profit for the firm, while any price level below $10 will lead to losses.

The Figure Given Below Shows the Revenue and the Cost