Final answer:
a) Total revenue equals total cost The correct answer to the student's question is that when a firm is earning a normal profit from the production of a good, its total revenue equals total cost.
Step-by-step explanation:
When a firm is earning a normal profit from the production of a good, it means that its total revenue equals its total cost. This condition corresponds to the question's option a) Total revenue equals total cost. The concept of normal profit implies that the firm is covering all its explicit and implicit costs, including a reasonable return on investment, but it is not earning economic profits above this level. In the context of a perfectly competitive market, a firm's total revenue increases at a constant rate as it produces more, based on the market price.
Economic profits are realized when the market price is above average cost, while losses occur when it is below. However, when market price equals average cost, the firm is earning just a normal profit.A firm is earning a normal profit when its total revenue is equal to its total cost. This means that it is making enough money to cover all of its expenses, but it is not making any additional profit. Total profit is zero in this situation. For example, if a firm's total revenue is $100 and its total cost is also $100, then its profit is zero.