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According to the source, if the market price a firm receives is lower than its average total cost of production, what happens?
AThe firm's marginal cost becomes zero
BThe firm suffers an economic loss
CThe firm earns an economic profit
DThe firm earns exactly zero economic profit
Answer & Solution
Correct answer: B. The firm suffers an economic loss
1. Table 8.4 compares price with average total cost to classify the firm's outcome.
2. When price falls below average total cost, the firm suffers a loss.
3. Zero economic profit requires price to exactly equal average total cost, not fall below it.
4. Nothing about a price below average total cost changes marginal cost itself.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.2 | How Perfectly Competitive Firms Make Output Decisions_
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