If a perfectly competitive firm finds that price is less than its ATC,then the firm
A) will raise its price to increase its economic profit.
B) will lower its price to increase its economic profit.
C) is making an economic profit.
D) is incurring an economic loss.
E) is making zero economic profit.

Question

Quizplus · Accepted Answer

If the price is less than the firm's ATC, it means that the firm is incurring an economic loss. In this case, the firm should either try to lower its costs or exit the market in the long run as it is not sustainable to incur losses indefinitely. The firm cannot increase its price as it is a perfectly competitive firm, and it has no market power to do so.

If a Perfectly Competitive Firm Finds That Price Is Less