Question

number 4 and 5

ATC 01 02 03 4. Is this firm making an economic profit, loss, or break-even? Should the firm produce? 四四四 01 02 03 04 5. This graph represents a monopoly. What price and quantity would the firm choose without regulation? Would it make an economic profit, loss, or break-even? What price and quantity would represent a fair-return regulation?

Answer 1

Q4) firm is incurring loss & it should shut down

Bcoz at eqm, MR = MC

& Price is found from demand Curve , but at all possible price levels, ATC lies above demand Curve, so Firm earns loss always

Q5)

At eqm, MR = MC, so Output = Q2

price is found from demand curve, which is P4

As ATC at Q2 is Lower than Price = P4,

so Firm makes profit

In fair return regulation

P = ATC, demand curve cuts ATC

so P= P3,

Q = Q3