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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Explain why one firm sometimes appears to be earning higher profits than another but, in reality, is not.

To determine

Explain why the statement “one firm earning higher profits than another” is not possible in reality.

Explanation

If there are two firms “A” and “B” in an industry, then both produce the same product. Both the firms have the same fixed cost and both sell the products at same price. However, firm “A” is much better for making the product than firm “B”. The average variable cost and average total cost of firm “A” is lower than firm “B”. Thus, sometimes, firm A seems to earn higher profit than firm “B”. However, it does not mean that firm “A” always makes profit...

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