Question

The point on which a firm earns only normal profit in the short run

• A. Shutdown point
• B. Excess supply
• C. Break even point
• D. Excess demand

Hint:

The break-even point is crucial in determining when a firm covers all its costs, including the opportunity cost of resources.

Answer 1

The Correct Option is C

Step 1: Understanding normal profit.
Normal profit is the minimum profit required to keep a firm in business. It occurs when a firm's total revenue equals its total cost, including the opportunity cost of the entrepreneur's time and resources.
Step 2: Explanation of options.

• (A) Shutdown point: Incorrect. The shutdown point is where a firm covers its variable costs but not its fixed costs. It does not earn normal profit.
• (B) Excess supply: Incorrect. Excess supply occurs when the quantity supplied exceeds the quantity demanded, which is not directly related to normal profit.
• (C) Break even point: Correct. At the break-even point, the firm's total revenue equals its total cost, meaning the firm earns zero economic profit, or normal profit.
• (D) Excess demand: Incorrect. Excess demand occurs when the quantity demanded exceeds the quantity supplied, not directly related to normal profit.

Step 3: Conclusion.
The correct answer is (C) Break even point because at this point, the firm earns normal profit, and its total revenue equals its total cost. Final Answer: Break even point.