Question:
Which of the following is true for a perfectly competitive firm in the short run?
(1) The firm always earns positive economic profit.
(2) The firm always earns a normal profit.
(3) The firm shuts down when the price falls below the average total cost.
(4) The firm maximises profit by producing at the point where the price equals marginal revenue.
(5) The firm may earn negative, positive or normal profit.
Correct Answer:
(5)
Answer Explanation:
In the short run, a perfectly competitive firm can earn abnormal (positive) profits, normal (zero) profits, or subnormal (negative) profits, depending entirely on where the market price sits relative to the firm’s Average Total Cost (ATC) curve.
Topic: Market Structures Year: 2021
Leave a Reply