In: Economics
-Define Profit, using equations(Using the average cost curve)
-Draw a graph where the oil price = $52/ barrel, Quantity supplied max = 32 barrels and Average Cost(@Q=32) = $54
-What is the profit this firm earns?
Profit is defined as the difference between revenue and cost
Profit = PQ - C(Q)
= Q(P - C(Q)/Q)
= Q(P - AC)
Hence profit = product of quantity and the excess of price over average cost when Q is produced
In this manner the firm earns a profit of (52 - 54)*32 = -64. This firm is making losses