Question

$70 $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 ATC MiC AVC MR 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Consider the graph above. If this company produces at the profit maximizing/loss minimizing level of output, it will experience _____ and should _____.

economic profit, continue doing business

economic profit, shut down

zero economic profit, continue doing business

zero economic profit, shut down

economic loss, continue doing business

economic loss, shut down

Answer 1

Answer

option 1

economic profit, continue doing business

the firm produces at MR=MC where
Q=7 units, P=$50 and ATC=$44 and P>AVC
Profit=(P-ATC)*Q
=(50-44)*7
=$42
so the firm is making a profit means the firm will operate and earn the economic profit of $42 ( approximately)