When a firm is producing at the profit-maximizing level of output and P > ATC, the firm is: a

Accounting Dec 08, 2020

When a firm is producing at the profit-maximizing level of output and P > ATC, the firm is:

a. breaking even

b. incurring an economic loss

c. earning an economic profit

d. earning a profit or incurring a loss depending on the level of total fixed costs

Expert Solution

The answer is c).

Profit is total revenue minus total cost, and thus average profit is equal to price minus average total cost. When price is larger than average total cost (P > ATC), then average profit is positive, and so is total profit.

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