Question

If a monopolistically competitive firm breaks even, the firm: a) should expand production b) is earning zero accounting and zero economic profit c) is earning an accounting profit and will have to pay taxes on that profit d) should advertise its product to stimulate demand

Answer 1

The correct answer is option c.

Step-by-step explanation:

Break-even point refers to the situation where the economic costs incurred is equal to economic profits. This is graphically represented by the point where the ATC curve intersects the AR curve. The price and output at that point will reflect break even.

At this point though, the firm will be earning some accounting profit and would need to pay taxes on that profit.