Which of the following is an example of an economic loss?

• A. A consumer pays less than the equilibrium price for a good
• B. A producer receives a price equal to marginal cost
• C. A firm sells its product at a price below its average total cost
• D. A market operates at allocative efficiency

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of economic loss. Economic loss occurs when a firm's total revenue is less than its total costs, including both explicit and implicit costs. This typically happens when the price received by the firm is below its average total cost (ATC).
2. Step 2: Analyze each option in terms of economic profit or loss. For example, if a consumer pays less than the equilibrium price, this does not directly indicate a firm's loss; it relates to consumer surplus.
3. Step 3: Consider the option where a producer receives a price equal to marginal cost. This situation often relates to allocative efficiency and does not necessarily imply a loss or profit, as it depends on the relationship between price and average total cost.
4. Step 4: Focus on the option where a firm sells its product at a price below its average total cost. Since price is less than ATC, total revenue is less than total cost, indicating an economic loss.
5. Step 5: Recognize that a market operating at allocative efficiency means resources are optimally allocated, which does not imply economic loss but rather an efficient outcome.