Question

In: Economics

-Define Profit, using equations(Using the average cost curve) -Draw a graph where the oil price =...

-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?

Solutions

Expert Solution

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


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