When the price of a product equals both the Average Total Cost (ATC) and the Marginal Cost (MC), this indicates a specific point of equilibrium in a perfectly competitive market. In this scenario, the correct interpretation is as follows:
- a) Producers will not want to increase output because the price is equal to the cost of producing one more unit (MC) and the average cost of producing all units (ATC). Any increase in output would not be profitable.
- b) New firms are likely to enter the market if there are economic profits, but since the price equals ATC, firms are not making any economic profits; therefore, there is no incentive for new firms to enter.
- c) Economic profits would indeed be zero in this situation. Firms are breaking even – covering all costs without making extra profit.
- d) The firm would not be operating at a loss. Operating at a loss would occur if the price were below ATC, which is not the case here.
In conclusion, the most accurate understanding is that the firm will be operating at zero economic profit. This equilibrium state means that while the firm is not making a profit, it is also not incurring losses, confirming the concept of normal profit in economics.