4. In a typical graph for a purely competitive firm, the intersection of the total cost and total revenue curves would be:
A. a point of maximum economic profit.
B. a point of minimum economic loss.
C. a point where MR = MC.
D. a break-even point.

Question

BlackTom AI · Accepted Answer

The question asks about where the intersection of total cost (TC) and total revenue (TR) curves would occur in a typical graph for a purely competitive firm, and presents four statements labeled A through D.
Option A: 'a point of maximum economic profit.' While profit is maximized where MR = MC, this is not generally the same as the point where TR intersects TC. At the MR = MC condition, profit is maximized, which typically occurs where the firm’s output is such that marginal revenue equals marginal cost, not simply where TR equals TC. Therefore, this option misidentifies the intersection of TC and TR as the profit-maximizing point.
Option B: 'a point of minimum economic loss.' A purely competitive firm earns zero economic profit (break-even) at the point where TR = TC for a given price and cost structure, but 'minimum economic loss' would imply a punitive situation where losses are minimized, which does not align with the general interpretation of TC and TR intersection, since intersection gives zero profit, not necessarily the smallest loss across outputs. This makes the statement inaccurate in the usual context.
Option C: 'a point where MR = MC.' This is a standard condition for profit maximization, but it describes the quantity that maximizes profit, not the intersection of the total cost and total revenue curves. The MR = MC condition focuses on marginal analysis, whereas TC = TR focuses on total (not marginal) equality. Thus this option confuses the criterion for profit maximization with the criterion for zero-profit intersection.
Option D: 'a break-even point.' When TR equals TC, the firm earns zero economic profit (a break-even situation). Graphically, the intersection of the total revenue curve and the total cost curve indeed corresponds to that zero-profit outcome, which is what is meant by break-even for a competitive firm. This is the conceptually correct interpretation of the TC and TR intersection in this context.
In summary, option A misplaces the profit-maximizing condition, option B misreads the outcome at TC = TR as a minimal loss scenario, option C points to MR = MC rather than total-cost equality, and option D correctly identifies the break-even interpretation of TC = TR. The reasoning hinges on understanding the distinction between total (TC vs TR) versus marginal (MR vs MC) analyses and what zero profit represents on a graph.

ECNM1116.32925.202530 Microeconomics Final; Spring 2025, 100 Multiple Choice Questions

4. In a typical graph for a purely competitive firm, the intersection of the total cost and total revenue curves would be: A. a point of maximum economic profit. B. a point of minimum economic loss. C. a point where MR = MC. D. a break-even point.

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