Final answer:
In a perfectly competitive market, if the ATC curve is above the demand curve, the firm will incur a loss because the market price is less than the firm's average total costs. The answer is option B.
Step-by-step explanation:
If the ATC curve is above the demand curve in a perfectly competitive firm, the firm will have a loss. In a perfectly competitive market, the price level is determined by market demand and supply, and firms are price takers. The area where the ATC curve is above the demand curve indicates that the price the firm can charge for its product, which is equivalent to market price, is lower than the average total cost of production.
When the market price is greater than the average total cost (ATC), the firm earns an economic profit. When the price equals ATC, the firm breaks even, earning zero economic profit. However, when the price is less than the ATC, the firm suffers a loss because it is not covering its total costs.