Home › CA Foundation › Business Economics › Price-Output Determination under Different Market Forms › A perfectly competitive firm sells at price ₹ 20…
A perfectly competitive firm sells at price ₹ 20, which exactly equals its average total cost of ₹ 20 per unit. The firm is earning:
ANormal profit only
BSupernormal profit
CAn economic loss
DZero total revenue
Answer & Solution
Correct answer: A. Normal profit only
1. ATC already includes a normal return on the entrepreneur's own resources.
2. When AR equals ATC, the firm just covers all costs including this normal return.
3. Economic (supernormal) profit equals AR minus ATC, which here is zero.
4. Therefore the firm earns normal profit only.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.5_
Related questions
A firm is currently at an output where MR > MC. To maximise profit, the firm should:When a dominant low-cost firm sets the price and the smaller fringe firms simply accept anA market structure in which there is a single buyer of a product or factor service is knowA group of firms that explicitly agree to coordinate price and output to act jointly like Under the kinked demand curve model, the segment of the demand curve above the prevailing The kinked demand curve hypothesis, proposed by Paul Sweezy, is mainly used to explain:The single most important feature that distinguishes oligopoly from other market forms is:Under monopolistic competition, firms compete largely through non-price methods. The main