Suppose that, in the short run, a perfectly competitive firm earns a normal profit. Which of the following is incorrect?

Question

Quizplus · Accepted Answer

If a perfectly competitive firm is earning a normal profit in the short run, then its price must be equal to its average total cost (ATC). Therefore, option B is correct. In addition, option A is also correct since the firm's marginal revenue (MR) would also be equal to the price. Option C is a restatement of the revenue equation, so it is also correct. Option D is not necessarily true because the firm could be earning a positive economic profit in the short run, which would mean that TR > TC. However, option E is incorrect because in order for a firm to earn a normal profit, its price must be equal to its ATC, not its average variable cost (AVC).

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