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#9 Consider the graph of a perfectly competitive firm showing the short run average total cost, average variable cost, and marginal cost curves. Suppose the

#9 Consider the graph of a perfectly competitive firm showing the short run average total cost, average variable cost, and marginal cost curves. Suppose the firm's marginal revenue line intersects marginal cost (MC) below the average total cost (ATC) curve, but above the average variable cost curve. If the firm chooses the level of output which maximized profit, which of the following is true?

  1. Price is above average variable cost and the firm is making a profit
  2. Price is below average variable cost and the firm is making a profit
  3. Price is above average variable cost and the firm is making a loss
  4. Price is below average variable cost and the firm is making a loss

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