Question

Under perfect competition, if the prevailing price is such that the price line is tangent to the minimum point of the average cost curve than the firm would __________.

• A. make only normal profit
• B. incur losses
• C. make normal profit
• D. profit cannot be determined.

Answer 1

The correct option is A make only normal profit

Perfect competition is a type of market where there are large number of buyers and sellers who deals in homogeneous of product due to which no individual unit is able to influence the price of the product.

Under perfect competition, there is freedom of entry and exit of firms. Therefore, when there is super-normal profits or losses the firms in the market enter and exit respectively due to which the firms in the industry only earn normal profits in the long run.