If the price of a product consistently exceeds its average cost, one can definitely conclude that the firm:
A) is earning a normal rate of return.
B) is maximizing its long-run profit.
C) is producing at its most efficient level of output.
D) is earning a positive economic profit.
E) is producing at the minimum efficient scale.

Question

Quizplus · Accepted Answer

If the price of a product consistently exceeds its average cost, it means the firm is earning a profit above and beyond what is required to cover its opportunity cost. This is known as economic profit, which is only possible when the firm is earning a return that exceeds its normal rate of return. Therefore, the best choice is D, "is earning a positive economic profit."

If the Price of a Product Consistently Exceeds Its Average