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Question 4: Illustrate the model of a perfectly competitive firm that is earning economic profits in...

Question 4:

  1. Illustrate the model of a perfectly competitive firm that is earning economic profits in the short-run. Make sure that you label your graph appropriately. Your graph should have the demand curve facing the firm (d­­­0), Price (P0), MR (­MR0), MC (MC), and ATC. Identify the optimal level of output (q0), as well as the profit the firm is earning (an area).

  1. Illustrate the model of a perfectly competitive firm that is in Long-run equilibrium. Your graph should have the demand curve facing the firm (d­­­0), Price (P0), MR (­MR0), MC (MC), and ATC (ATC). Identify the optimal level of output (q0). (2 points) What is the firm’s profit in the Long-run?

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