Suppose a Perfectly Competitive Firm Is in the Following Situation

question 264

Multiple Choice

Suppose a perfectly competitive firm is in the following situation: P = $7; output = 4,000; ATC = $8; AVC = $6; and MC = $8. Which statement accurately describes the firm's and the market's situation?

• 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.

---

Definitions:

Fiscal Quarters

Divisions of a financial year into four parts, used for accounting purposes and financial reporting by companies.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the rate that banks and other lenders quote.

Effective Interest Rate

The actual interest rate when compounding is accounted for, expressed as an annual rate.

Lender

An individual, a financial institution, or an entity that provides funds to another with the expectation that the funds will be repaid, usually with interest.