Question

A perfectly competitive firm producing where p= mr =mc > atc in the short run is:

1) making a profit
2) making a loss
3) breaking even
4) cannot be determined

Answer 1

A perfectly competitive firm producing where P equals MR equals MC and is greater than ATC in the short run is making a profit, as price being greater than ATC indicates profitability.

Step-by-step explanation:

A student has inquired about the condition of a perfectly competitive firm producing where price (P) equals marginal revenue (MR) equals marginal cost (MC) and is greater than average total cost (ATC) in the short run. The answer to whether this firm is making a profit, a loss, or breaking even is that the firm is making a profit. This situation is because when price, which also equals marginal revenue for a perfectly competitive firm, is above the average total cost at the output level where MR equals MC, the firm earns a profit. This is under the assumption that firms are maximizing their profits where marginal revenue equals marginal cost.