Question

in the short-trun, a perfectly competitive firm is producing at a price below average total cost, it's economic profit is:

1. negative

2. zero

3. positive

4. normal

Answer 1

Ans: negative

Explanation:

If the firm does not cover its average total cost with its price, then its economic profit is negative. So, option (1) is correct.

The price must equal average total cost for economic profit to be zero. So, option (2) is incorrect.

The price must exceed average total cost for economic profit to be positive. So, option (3) is incorrect.

The price must equal average total cost for economic profit to be zero(i.e., normal profit). So, option (4) is incorrect.