Question

Assume that the following conditions exist for a perfectly competitive firm:
price = $10, current output = 100 units/hour, ATC at current output = $9.00, AVC at current output = $8.00 and MC at current output = $8.00.
a. Is the firm earning any economic profit currently? How much is its profit or loss?

Answer 1

b. Is the firm maximizing its economic profit? How do you know? What should the firm do to maximize profit? Should it increase or decrease output?
c. Given your answers in part b, how will the market adjust to reach long-run equilibrium? What will happen to the economic profit in the long-run? Include appropriate graphs for the market and the typical firm in your explanation.

Answer 2

I know that accountint profit is equal to total revenue minus total explicit costs
economic profit= total revenue - total costs
normal profit= accounting - economic profit

but I am totally stuck with how to calculate this equation.
can someone please help or point me in the right direction?
I have been taking economics test all morning and my brain is pretty much at the quitting point. >_< Someone help wake it back up!

Answer 3

i'm working on this problem, so if someone could tell me if I've got the right idea?
here's my part a
profit= revenue - cost
b/c P= 10 and ATC= 9, P>ATC so there is positive economic profit being earned.
Price per unit being 10$ and ATC being 9$, there is 1$ of profit being earned per unit.

Answer 4

here's my part b, but i'm not sure it's correct:
With profit maximization, price exceeds average total cost at the quantity that equates marginal revenue and marginal cost. In this case, the firm generates an economic profit.
so, P>ATC where MR=MC
if P=D=MR
then MR=10
if MR=10 and they are producing at output where MC=8,
they are not currently maximizing profit.

Answer 5

I am familiar with these concepts, but I don't know what it is about this problem that is throwing me off.
Is it the '100units per hour' thing?
Also, my graph doesn't seem correct, but I'm not sure how to upload it...