The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5 MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
According to Figure 9.5, the firm has:

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.5  MC: Marginal cost curve
MR: Marginal revenue curve.
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
According to Figure 9.5, the firm has:

Quizplus · Accepted Answer

The firm is producing where MR=MC, which is at output level Q1. At this level, the total revenue (TR) is equal to the total cost (TC) including a normal profit, as the ATC curve is tangent to the demand curve at this point. Therefore, the profit is zero. However, the actual cost faced by the firm is higher than the average cost at this output level. The firm is facing losses equal to the area P₁BDE, which is the difference between the total revenue and the actual total cost.

The Figure Given Below Shows the Revenue and Cost Curves