Question

Industry Firm МС P So АТСC S1 b 18 -P1=MR1 14.2 14 Po=MRo 9.6 Do Q 10 20 24 800 900 1,000 Answer the following questions based off of the graphs above, which depict a perfectly competitive industry and firm: If the industry or market is in equilibrium at point C, where will the firm choose to operate and what are the economic profits (losses) at that point? Why did the economic profits (losses) change compared to when the market was in equilibrium at point B? O Q=24 and Economic profits-$91.2; The economic profits present in the market at point B enticed firms to enter the market and compete away the economic profits O Q-20 and Economic profits-$0; The economic profits present in the market at point B enticed firms to enter the market and compete away the economic profits O Q-20 and Economic profits-$-91.2; The economic losses present in the market at point B caused firms to exit the market. This led to an increase in the price. O Q-24 and Economic profits -$0; The economic profits present in the market at point B enticed firms to enter the market and compete away the economic profits ..

Answer 1

A. Q = 24 and Economic profits = $91.2. The economic profits present in the market at point B enticed firms to enter the market and compete away the economic profits.

(At B, 24 units are produced, price = $18, ATC = $14.2. So, economic profits = (P - ATC)*Q = (18 - 14.2)*24 = (3.8)*24 = 91.2. So, there are economic profits at B. This will cause firms to enter the market until economic profits are zero.)