Question

Assignments must be typed, with all calculations shown. Diagrams can be hand drawn --- insert your diagrams in the appropriate sections of your document. To insert a diagram in Word, use the Insert tab and click on Pictures to upload the diagram. Handwritten assignments are not accepted. Assignments must be submitted in the appropriate Dropbox on Brightspace either as a Word or pdf file. Email attachments are not accepted. The assignment can be completed in groups of two or three, or on your own Student Name A# Question 1. Suppose Aquilya's firm operates in a perfectly competitive market and at its current level of output, marginal revenue exceeds the minimum average total cost of production. In addition, Aquilya's firm is currently producing a level of output at which its marginal cost is less than its average total cost at that level of output. Is she maximizing her economic profits? Why or why not? Explain. [3 marks] Aquilya's firm would not be maximizing their profits but the firm is still making profits. They are still making profits because their marginal revenue is greater than the average total cost of production, but their marginal cost is not equal to their marginal revenue therefor they are not maximizing their profits.

Answer 1

Note: In perfect competition, MC cuts ATC at its minimum

o Given information ? competitive market and its CoQ,) & MR > min ATC and I frem operates in perfectly curent level of output MC EATCO Px / Cost / Revenue ATC Profits B as MR > ATC -Price = MR ATC of min Arch IMC oft to Q+ Sinu, at OQ : MR > mün ATC and Mc < ATC film is earning profit of an abd) But it is not the output level where profits are maximized as at this level of output MR & MC e - therefou, she is not maximizing her Lconomic profits a Profits au maximized at point E when MC = . MC cuts MR from below