Assume a Firm Is Operating Under Conditions of Pure Competition

question 17

Essay

Assume a firm is operating under conditions of pure competition and faces a marginal cost function that is everywhere below its average total cost. If the firm is producing where marginal revenue equals marginal cost will it be possible for it to make an economic profit? Explain.

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Definitions:

Significant Influence

The ability to impact the financial and operating policies of an investee through ownership or contract without having full control or majority ownership.

Gross Profit

The difference between revenue and the cost of goods sold before accounting for certain other costs.

Intra-entity Sales

Transactions of goods or services between divisions or units within the same legal entity.

Equity Method

A technique where an investor reflects its share of an associate's or joint venture's profits or losses in its own financial statements, affecting the carrying value of the investment.