Question

In the short period, a firm is in equilibrium at output where MC = MR. At this output, if AR > AC, the firm is ______.

Options

• Earning normal profit

• Earning super-normal profit

• Making a loss

• Earning zero revenue

Answer 1

In the short period, a firm is in equilibrium at output where MC = MR. At this output, if AR > AC, the firm is earning super-normal profit.

Explanation:

When average revenue is greater than average cost at the equilibrium output, total revenue exceeds total cost, so the firm earns super-normal (abnormal) profit, which existing firms can continue to earn in the short period.