If a perfectly competitive firm's price is above its average total cost, the firm
A)is earning a profit.
B)should shut down.
C)is incurring a loss.
D)is breaking even.

Question

Quizplus · Accepted Answer

If a perfectly competitive firm's price is above its average total cost, it means that the firm is able to cover all its costs including fixed costs and is also making a profit. Hence, the firm should continue operating and earning profits in the long run.

If a Perfectly Competitive Firm's Price Is Above Its Average