Question

1A.Draw two graphs. On the first, show the short-run profit maximizing output of an individual firm earning an economic profit, including MR, MC, AVC, and ATC. On the second, show the short-run market equilibrium price and quantity. Explain how the industry supply curve and the market equilibrium price and quantity are determined.

B.Draw the MC, MR, ATC, and long-run ATC curves for a perfectly competitive firm in long-run equilibrium. Explain the relationship between those curves. Next, draw another graph showing long-run equilibrium for the perfectly competitive market. What is the relationship between the two graphs?

C.In the short run, a perfectly competitive firm may earn positive economic profits. On a graph, show this situation, using marginal revenue, marginal cost, average-total-cost, and average-variable-cost curves. Indicate the level of output the firm will produce and shade in the area that represents the firm's positive economic profit. In words, explain why your graph shows positive economic profits.

D.In the short run, a perfectly competitive firm may earn negative economic profits but continue to operate. On a graph, show this situation, using marginal revenue, marginal cost, average-total-cost, and average-variable-cost curves. Indicate the level of output the firm will produce and shade in the area that represents the firm's negative economic profit. Explain why your graph shows negative economic profits.

Answer 1