Final answer:
False. Manuel is not earning a normal profit because his profit is negative.
Step-by-step explanation:
False. Manuel is not earning a normal profit because his profit is negative. In economics, normal profit refers to the minimum amount of profit needed to keep a firm in business. It is the opportunity cost of the resources used by the firm. If a firm is only earning normal profit, its profit would be zero, not negative. In Manuel's case, his negative profit indicates that he is experiencing losses.
To determine whether a firm is earning a profit or not, we can compare the price of the good or service with the average total cost (ATC) of production. If the price is greater than the ATC, the firm earns a profit. If the price is equal to the ATC, the firm earns zero economic profit. And if the price is less than the ATC, the firm earns a loss. In Manuel's situation, his profit is negative, indicating that the price is less than the ATC, and the firm is experiencing losses.
For example, at an output of five units, the average cost is $26/unit, while the price is $25/unit. This means that the firm is losing $1 for each unit produced. With five units produced, the total losses would be $5. Therefore, Manuel's negative profit indicates that he is not earning a normal profit.