Question

Assume a firm is operating under perfect competition and after profit maximizing, it finds that its Price is P=200 and its average total costs are 180. Is this firm making a profit or a loss and how do you know (explain). Further, will that level of profit or loss continue for this firm for a long time – why or why not? Explain.

   •   Assume that after profit maximizing, a monopolist finds that its price is 100, its output Q is equal to 200, its average total cost is 75 and its average variable cost is 70. Draw a graph for this monopoly, showing the demand curve, marginal revenue curve, Marginal cost curve, average total cost curve, and average variable cost curve. Be sure to show where and how it finds its profit-maximizing level of P and Q. Finally, explain if this firm is making a profit or not, and whether it should quit operations immediately or stay in business and explain why. Be sure to label everything on the graph and explain).

Answer 1