If a Perfectly Competitive Firm's Average Total Cost Is Less

question 14

Multiple Choice

If a perfectly competitive firm's average total cost is less than the price,then the firm

• A) incurs an economic loss.
• B) makes an economic profit.
• C) makes zero economic profit.
• D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price.
• E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit.

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Definitions:

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used by anyone without preventing others from using them as well.

Not Excludable

A characteristic of a good or service that does not allow producers to prevent its use by non-paying consumers, often leading to market failure.

Free Riders

Individuals who benefit from resources, goods, or services without paying for them, often leading to under-provision or depletion of those resources.

Club Goods

Items that are non-rivalrous but excludable, meaning that one person's use does not reduce availability to others but access can be restricted, typically through a membership fee.