The above figure shows some a firm's cost curves and its marginal revenue curve.
-Consider a short-run equilibrium in a perfectly competitive market.Suppose that the firms' average total cost and marginal cost schedules differ.In the short run,
A) all firms in the market must be able to make an economic profit.
B) all firms produce equal amounts of output.
C) some firms might incur an economic loss, but still produce output.
D) some firms might make an economic profit and, as a result, shut down.
E) all firms in the market must be able to make either positive or zero economic profit.

Question

The above figure shows some a firm's cost curves and its marginal revenue curve.
-Consider a short-run equilibrium in a perfectly competitive market.Suppose that the firms' average total cost and marginal cost schedules differ.In the short run,
A) all firms in the market must be able to make an economic profit. 
B) all firms produce equal amounts of output. 
C) some firms might incur an economic loss, but still produce output. 
D) some firms might make an economic profit and, as a result, shut down. 
E) all firms in the market must be able to make either positive or zero economic profit.

Quizplus · Accepted Answer

In a short-run equilibrium in a perfectly competitive market, firms will produce where marginal cost equals marginal revenue. If the firms' average total cost and marginal cost schedules differ, it means that the firms are experiencing economies or diseconomies of scale. Therefore, some firms might incur an economic loss, but still produce output as long as the price is above their average variable cost. However, firms cannot operate in the long run with economic losses, so some may eventually exit the market. Therefore, choice C is the best answer.

The Above Figure Shows Some a Firm's Cost Curves and Its