Question

In the short run, if P > ATC, a perfectly competitive firm:A. produces output and incurs an economic loss.B. produces output and earns zero economic profit.C. does not produce output and earns economic profit.D. produces output and earns an economic profit.

Answer 1

Answer:

D. produces output and earns an economic profit.

Explanation:

The firm will produce as making the product will pay the cost of the units produced with the current market price of the final good.

As the price is above the average total cost the firm will also earn an economic profit (that is after the accounting profit of explicit cost we subtract the opportunity cost with are implicit in any business and even there, the company manages to get a profit.