BNW is one of many, many producers of luxury wheelchairs, which are differentiat
ID: 1227580 • Letter: B
Question
BNW is one of many, many producers of luxury wheelchairs, which are differentiated to appeal to different market niches. BNW's relevant demand and cost curves are depicted below. Use this graph to answer the questions that follow. Assume there are no significant barriers to entry. Determine BNW's profit-maximizing price and quantity and enter them below. Calculate BNW's profit and enter it below. Choose the answer below that best describes what is likely to happen in the long run in this industry. Firms will enter this industry, increasing demand and marginal revenue at the firm level, until industry-wide economic profit is positive. Firms will exit this industry, decreasing demand and marginal revenue at the firm level, until industry-wide economic profit is equal to zero. Firms will exit this industry, increasing demand and marginal revenue at the firm level, until industry-wide economic profit is negative. Firms will enter this industry, decreasing demand and marginal revenue at the firm level, until industry-wide economic profit is equal to zero.Explanation / Answer
Profit maximizing equilibrium is where MC intersects MR.
At this point Q = 300 and P = $1,200 as taken from demand or average revenue curve.
Profit per unit = P - ATC = 1200 - 800 = 400
Total profit = 400 x 300 = $120,000
Correct option: (d) Attracted by the profits, more firms will enter the industry, decreasing demand and marginal revenue at the firm level, until the industry wide economic profit is zero.
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