Question

When does a firm experience normal profit?
• [(A)] When total revenue equals total cost.
• [(B)] When economic profit is zero.
• [(C)] When price is equal to minimum AVC.
• [(D)] When price is equal to ATC in the long run. Choose the correct answer:

• A. (A), (B), and (D) only
• B. (A) and (C) only
• C. (B) and (C) only
• D. (A), (B), (C), and (D)

Hint:

Normal Profit: \[ TR=TC \] \[ \mathrm{Economic\ Profit}=0 \] Long run equilibrium: \[ P=ATC \]

Answer 1

The Correct Option is A

Step 1: Understand normal profit.
Normal profit occurs when: \[ \mathrm{Total\ Revenue = Total\ Cost} \] Thus: \[ \mathrm{Economic\ Profit = 0} \] Hence statements (A) and (B) are correct.

Step 2: Analyze statement (C).
Price equal to minimum AVC represents shutdown point condition in short run. It does not necessarily imply normal profit. \[ \Rightarrow \mathrm{Incorrect} \]

Step 3: Analyze statement (D).
In long run equilibrium: \[ P=ATC \] At this point firms earn: \[ \mathrm{Normal\ Profit} \] Hence: \[ \Rightarrow \mathrm{Correct} \]

Step 4: Identify correct combination.
Correct statements are: \[ (A),\ (B),\ \text{and}\ (D) \] Therefore, the correct answer is: \[ \boxed{\mathrm{(A)}} \]