Final answer:
The correct answer to the student's question is a) Zero economic profit, which occurs when a firm's price is equal to its average cost in a perfectly competitive market, reflecting the firm's long-run equilibrium.
Step-by-step explanation:
In a perfectly competitive market, if a firm's price was equal to its average cost, the firm would earn what is known as zero economic profit. This scenario is described as the long-run equilibrium, which is reached when new firms enter the market in response to any positive economic profits being made by existing firms, thereby increasing supply and driving prices down until they equal average costs. At this point of equilibrium, the firm's economic profits are zero because the accounting profits are equal to the opportunity costs of capital and labor, indicating that the resources could not earn more in any other use. Similarly, if a firm is experiencing losses, other firms will exit the market, raising the demand for the remaining firm's product until the losses are mitigated and the firm once again reaches a point where its demand curve touches its average cost curve, this point is labeled as point Z in the figure being referenced. Therefore, the correct answer to the student's question would be a) Zero economic profit, which is the name given to economic profit when the price is equal to the average cost.