Which of the following is true when the marginal revenue in a perfectly competitive market is at a point where the intersection of MR and MC coincides with the ATC curve?MR = Marginal RevenueMC = Marginal CostATC = Average Total CostThe firm’s profit is on the rise.The firm is incurring losses with each unit sold.The firm's Total Revenue is less than its Total Cost.The firms have reached a point where its Total Revenue = Total Cost.
Question
Which of the following is true when the marginal revenue in a perfectly competitive market is at a point where the intersection of MR and MC coincides with the ATC curve?MR = Marginal RevenueMC = Marginal CostATC = Average Total CostThe firm’s profit is on the rise.The firm is incurring losses with each unit sold.The firm's Total Revenue is less than its Total Cost.The firms have reached a point where its Total Revenue = Total Cost.
Solution
The correct answer is: The firms have reached a point where its Total Revenue = Total Cost.
Here's why:
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Marginal Revenue (MR) is the revenue gained from selling one additional unit of a good or service.
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Marginal Cost (MC) is the cost of producing one additional unit of a good or service.
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Average Total Cost (ATC) is the total cost per unit of output.
When MR = MC, it means that the revenue gained from selling one additional unit equals the cost of producing that unit. This is the point of profit maximization for a firm in perfect competition.
When this point of MR = MC coincides with the ATC curve, it means that the average total cost per unit of output equals the revenue gained from selling one unit. In other words, the total revenue equals the total cost.
Therefore, the firm is not making a profit (total revenue > total cost) or incurring a loss (total revenue < total cost). Instead, it's breaking even (total revenue = total cost).
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