Question

3) Christine’s photography business is a profit-maximizing competitive firm. Christine takes

photos for $150 a session. Her variable cost for each session is $50 and she has a fixed cost of

$2500 for equipment. Christine had 22 sessions last year. Calculate Christine’s economic

profit. What can you say about Christine's short-run decision regarding shutdown and her

long-run decision regarding whether to remain in the market or to exit the market?

Answer 1

Economic Profit = TR - TC

TR = 150 * 22 = 3300

TC = 50 * 22 + 2500 = 3600

Profit = 3300 - 3600 = -300

In Short run she should remain in market as P > AVC.

Here P = 150 and AVC = 50 (variable cost per session)

In long run she should exit the market as she is suffering losses