Question

In the short run, a perfectly competitive firm earning positive economic profit is:

a) above its atc.
b) at the minimum of its atc.
c) below its atc.
d) on the upward-sloping portion of its atc.
e) on the downward-sloping portion of its atc.

Answer 1

A perfectly competitive firm earning positive economic profit operates at a point where the market price is above its average total cost.

Step-by-step explanation:

In the context of a perfectly competitive firm that is earning positive economic profit, it would be operating at a point where the market price is greater than the average total cost (ATC). The correct answer is therefore a) above its ATC. This situation indicates that the price the firm is receiving for its product is higher than the cost of producing each unit, leading to economic profits. Over time, these profits will attract more firms to the market, which will lead to an increase in supply, a decrease in the market price, and the elimination of profits.