Asked by shawn christian on Jun 27, 2024
Verified
In the short run,a purely competitive firm will earn a normal profit when:
A) P = AVC.
B) P > MC.
C) that firm's MR = market equilibrium price.
D) P = ATC.
Normal Profit
The minimum level of profit necessary for a company to remain competitive in the market, covering opportunity costs but not generating economic profit.
Market Equilibrium
The state in which market supply and demand balance each other, and, as a result, prices become stable.
- Discern the conditions enabling organizations in absolute competitive markets to accumulate economic profits, equalize revenues with expenses, or bear losses.
Verified Answer
GD
Gurridhillon DhillonJun 30, 2024
Final Answer :
D
Explanation :
A purely competitive firm will earn a normal profit in the short run when its price is equal to its average total cost (ATC). This is because in the short run, the firm is unable to adjust its fixed costs, so it must cover those costs with its variable costs. If the firm can sell its output at a price equal to its ATC, it is earning enough revenue to cover both its variable and fixed costs, resulting in a normal profit. Choices A, B, and C are incorrect because they do not necessarily result in a normal profit for the firm in the short run.
Learning Objectives
- Discern the conditions enabling organizations in absolute competitive markets to accumulate economic profits, equalize revenues with expenses, or bear losses.
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