Question

1.) In the short run, a perfectly competitive firm A. can change only its fixed inputs....

1.) In the short run, a perfectly competitive firm

A. can change only its fixed inputs.

B. can make only zero economic profit.

C. can vary all its inputs.

D. produces the level of output that sets the average total cost equal to the market price.

E. can possibly make an economic profit or possibly incur an economic loss.

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Answer #1

Option E

E. can possibly make an economic profit or possibly incur an economic loss.

A perfectly competitive market has identical product and free entry and exit so the demand curve is the price set by the market forces so it is horizontal and the firm maximize profit or minimize losses at MC=P, if at MC=P the P<ATC the firm make losses and P>ATC the firm ake profit in the short run. In the long run, the price is equal to min(ATC) and the firm can earn only zero economic profit.

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