At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for...

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?

Expert Solution

Profit =(P-ATC)*Q

P=price=12.5

ATC=average total cost=10

Q=quantity=1000

The profit =(12.5-10)*1000

=2500

the profit is $2500

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Firm in the market is making a profit in the short run so in the long run new firms will enter the market and increase the supply in the market and the price will decrease. The firm will make zero economic profit in the long run.

Rahul Sunny answered 2 years ago

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