earns zero profits. Finally, if the price the firm receives leads it to produce at a quantity where the price is less

than average cost, the firm will earn losses. Table 8.4 summarizes this.

If...

Then...

Price > ATC Firm earns an economic profit

Price = ATC Firm earns zero economic profit

Price < ATC Firm earns a loss

TABLE 8.4

CLEAR IT UP

Which intersection should a firm choose?
At a price of $2, MR intersects MC at two points: Q = 20 and Q = 65. It never makes sense for a firm to choose a level

of output on the downward sloping part of the MC curve, because the profit is lower (the loss is bigger). Thus, the

correct choice of output is Q = 65.

The Shutdown Point

The possibility that a firm may earn losses raises a question: Why can the firm not avoid losses by shutting

down and not producing at all? The answer is that shutting down can reduce variable costs to zero, but in the
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