When a firm uses average total cost pricing,
A)above-normal profits are made.
B)economic profits equal zero.
C)there is not enough money to pay investors in the firm their opportunity costs.
D)price equals marginal cost.
E)there is not enough money to pay the managers.

Question

Quizplus · Accepted Answer

When a firm uses average total cost pricing, it sets the price equal to the average total cost, which means that the firm covers all its costs, including normal profit (which is the minimum return necessary to keep resources in their current use), but it does not make above-normal profits. Therefore, economic profits equal zero because the firm is just covering its costs without making extra profit.

When a Firm Uses Average Total Cost Pricing