Chapter 58, Problem 3MCQ

To determine

The correct option that defines the condition about perfectly competitive firm.

Answer to Problem 3MCQ

Option d is correct.

Explanation of Solution

Explanation for correct option:

d.

In a perfectly competitive firm, the firm can earn profit if its revenue is higher than the cost. From given options, price is greater than average total cost holds the truth. If price or marginal revenue is higher than average total cost then firm can earn profit. Therefore, option d is correct.

Explanation for incorrect options:

a.

Perfectly competitive firm will incur losses if its revenues are lower than its total cost. Therefore, option a is incorrect.

b.

If average revenues are lower than average total cost then alsos firm will incur losses instead of making profit. Therefore, option b is incorrect.

c.

To determine the profit earned, firm should find the difference between the cost and the revenues instead of searching difference between marginal cost and average total cost. Therefore, option c is also incorrect.

e.

To compute profit level, the firm should analyze the marginal revenues equal to or greater than marginal cost. Therefore, option e is incorrect.

Economics Concept Introduction

Perfect Competition: In perfect competition, firms are the price takers where average total cost (ATC) is minimum to the point at which MC curve cuts the MR curve.