2. Mattie Liu’s Tea Company produces and sells teapots in a perfectly competitive market. The minimum...

2. Mattie Liu’s Tea Company produces and sells teapots in a perfectly competitive market. The minimum of Liu’s average total cost is $10 at q=200 teapots. The minimum of Liu’s average variable cost is $6 at q=100 teapots. The market price for teapots is $7.

a. Draw market and firm graphs of this situation. Is Liu making a profit? Explain and show on the graph.

b. Will Liu stay in business? Why or why not? At what price will Liu make a positive economic profit?

Expert Solution

Rahul Sunny answered 2 years ago

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