At its current level of production a profit-maximizing firm in a competitive market receives $11.50 for...

At its current level of production a profit-maximizing firm in a competitive market receives $11.50 for each unit it produces and faces an average total cost of $9.00. At the market price of $11.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 800 units. What is the firm's current profit? What is likely to occur in this market and why?

Solutions

Expert Solution

P= $11.50

ATC = $9

MR=MC at Q=800 units.

So, the firm's current profit = (TR-TC)Q = (P)(Q)- (ATC)(Q)

= (11.50)(800)- (9)(800)

= 9200 - 7200

= $2000

Because firm is earning positive profit (P>ATC) , so firms enter into the market in the long run. As a result , supply increases till when P=minimum ATC.

Rahul Sunny answered 1 year ago

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