A firm will make a profit when
A)P AVC.
B)P ATC.
C)P = ATC.
D)P = MC.

Question

A firm will make a profit when
A)P > AVC.
B)P > ATC.
C)P = ATC.
D)P = MC.

Quizplus · Accepted Answer

In order to make a profit, the price (P) must be greater than the average total cost (ATC) because this means that the revenue generated from selling a good or service is sufficient to cover all costs and provide a positive net income. If the price is only greater than the average variable cost (AVC), the firm may still incur losses because it is not covering all costs, including fixed costs. On the other hand, if the price equals the ATC or the marginal cost (MC), the firm is breaking even and not making any profit.

A Firm Will Make a Profit When