Suppose a Perfectly Competitive Firm Is in the Following Situation

question 120

Multiple Choice

Suppose a perfectly competitive firm is in the following situation: P = $9; output = 4,000; ATC = $8; AVC = $6; and MC = $9. Which statement accurately describes the firm's and the market's situations?

• A) The firm earns normal profit; the market is in a long-run equilibrium.
• B) The firm earns economic profit; the market is in a short-run equilibrium.
• C) The firm incurs losses; the market is in a short-run equilibrium.
• D) The firm earns economic profit; the market is in a long-run equilibrium.

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Definitions:

Equivalent Unit

A metric in cost accounting that quantifies the effort invested in partially finished units by equating it to the output of completely finished units.

First-in

implies the method where the earliest goods produced or acquired are the first to be used or sold.

Materials

Inputs and supplies used in the production of goods or in the provision of services.

Completed Unit

A term used in manufacturing and production to describe a product that has finished all stages of the production process and is ready for sale.