1. Q1 2. Q2 3. Q3 4. Q4 5. Q5 6. Q6 B. When this firm is maximizing profits, it

Question

1. Q1 2. Q2 3. Q3 4. Q4 5. Q5 6. Q6
B. When this firm is maximizing profits, it is making: 1. Zero economic profits 2. Positive economic profits 3. Negative economic profits (Is answer one correct? If not, what is it?)

C. On the graph, draw in the demand curve that this firm will face when the market for Good X is in Long-run equilibrium, and identify the long-run equilibrium price as Px(LR).
(Did I draw this on my graph correctly? If not, what should it be?)

Thank you for your help! The Market for Good X is perfectly competitive. The graph below depicts the behavior of the typical producer of Good X, that is operating in the Short Run. Py MC ATC AVC 7% RUR

Explanation / Answer

A. Q5
the condition for profit maximization is P = MC. Only at output level q5 does the P = MC condition is satisfied.

B. 2. Positive economic profits
Note that at output level q5, per unit cost of production is less than price. This can inferred by looking at the position of ATC which lies below the price level (i.e. P>ATC at q5). Hence, the firm earns position economic profits.

C. Yes, it is drawn correctly.
In long run, the firms earn zero economic profits and operates at minimum of ATC and also charges a price which is equal to minimum of ATC.

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