Question

in the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is:
a. zero.
b. normal.
c. positive.
d. negative.

Explanation:

Economic profit for a firm is calculated as total revenue minus total cost. For a perfectly competitive firm, total revenue is price ($P$) multiplied by quantity ($Q$), so $TR = P \times Q$. Average total cost ($ATC$) is total cost ($TC$) divided by quantity, so $TC = ATC \times Q$. If $P < ATC$, then $P \times Q < ATC \times Q$, meaning total revenue is less than total cost, resulting in negative economic profit.

Answer:

d. negative.