Final answer:
The correct answer is option a. In the short-run equilibrium of a competitive market, with new firms entering, the relationship is that price (P) is greater than marginal cost (MC) and greater than average total cost (ATC), indicating existing firms make economic profits.
Step-by-step explanation:
In the context of a short-run equilibrium of a competitive market with identical firms, where new firms are preparing to enter the market, we have to analyze the relationships among price (P), marginal cost (MC), and average total cost (ATC). As entry into the market is expected, this implies that existing firms are earning more than the zero-profit level, which is indicated by the price being above the average total cost.
Specifically, we can observe that in this scenario, P > MC since the firms will continue to increase output to the point where P = MR = MC, and also P > ATC, indicating that firms are making a positive economic profit which attracts new firms to the market. The correct relationship that describes this scenario is: a. p > mc and p > atc.