Multiple Choice
Which of the following sources of market inefficiency would be most easily exploited by arbitrageurs in a competitive market?
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
If Sidney Airlines is currently breaking even in a perfectly competitive market, which of the following must be true?
A
The firm is earning positive economic profit.
B
Price is less than average total cost.
C
Marginal cost is greater than marginal revenue.
D
Total revenue equals total cost.
Verified step by step guidance1
Understand the concept of breaking even in a perfectly competitive market: breaking even means the firm is making zero economic profit, which occurs when total revenue equals total cost.
Recall that in perfect competition, the price (P) is equal to marginal revenue (MR) because firms are price takers and can sell any quantity at the market price.
Recognize that when a firm breaks even, the price also equals average total cost (ATC), so \(P = ATC\) and total revenue (TR) equals total cost (TC).
Analyze the options given: positive economic profit means \(TR > TC\), which contradicts breaking even; price less than ATC means the firm is making a loss; marginal cost (MC) greater than MR means the firm is not maximizing profit.
Conclude that the correct statement is that total revenue equals total cost, which aligns with the definition of breaking even in perfect competition.
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