Use the following to answer questions # 32-33 ATC MC MR Demand FJL N Quantity 32

Question

Use the following to answer questions # 32-33 ATC MC MR Demand FJL N Quantity 32. What is the short-run profit earned by the profit-maximizing firm described in the figure above? A] CEIH B] AEIG [C] ACHG D] OBKJ 33. According to the graph above, what are the short-run costs for the firm? [A] AOGF BI EIFO [C] DMLO DI CHFO 34. In long-run equilibrium, the monopolistically competitive firm A] will cease to advertise. B] will face a perfectly elastic demand curve. [C] will earn zero economic profit. ID] earns a positive economic profit. 35. The oligopoly market structure model is characterized by [A] a single firm in an industry with barriers to entry B] few firms in an industry with barriers to entry. C] many firms in the industry producing differentiated products ID] many firms in the industry producing identical products.

Explanation / Answer

(32) [A]

Profit is maximized when MR equals MC. From graph, when MR intersects MC, Price is E and ATC is H, so

Profit = Quantity x (Price - ATC) = Area CEIH

(33) [D]

From graph, when MR intersects MC, quantity is F and ATC is H, so Total cost = Quantity x ATC = Area CHF0

(34) [C]

In long run, entry and exit are free and so all firms will earn zero economic profit.

(35) [B]

In oligopoly, a few large firms dominate the market and barriers to entry are high.

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