Question
In: Economics
Suppose Bella's Belt Barn operates in a perfectly competitive market and is producing its profit-maximizing level...
Suppose Bella's Belt Barn operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production, Bella's average total cost of producing belts is $22.50, average variable cost is $21.30, and marginal cost is $21.70. At this moment, Bella is earning _____ economic profits. Over time, everything else held constant, the price of belts in this market will _____.
Solutions
Expert Solution
In perfectly competitive market, profit maximizing condition is:
Price= Marginal Cost
Price= $21.70
Economic profits= (Price-average total cost) x Quantity
Economic profits= ($21.70-$22.50) x Quantity
Economic profits= -0.80 x Quantity < 0
Economic profit is negative as quantity is always positive.
At this moment, Bella is earning negative economic profits. Over time, everything else held constant, the price of belts in this market will $21.70
Rahul Sunny answered 2 years agoRelated Solutions
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