At its current level of production, a firm in a perfectly competitive market receives $15 for...

At its current level of production, a firm in a perfectly competitive market receives $15 for each unit it produces. The firm also faces an average total cost of $9. At the market price of $15 per unit, the firm’s profit-maximizing quantity is 800. What are the firm’s current profits? What is likely to occur in this market? Why?

Solutions

Expert Solution

Total revenue = market price * quantity = $15 * 800 = $12,000

Total cost = average cost * quantity = $9 * 800 = $7,200

Total profit = total revenue - total cost = $12,000 - $7,200 = $4,800.

There is positive economic profit in the market and more firms are likely to enter in the long-run.

Rahul Sunny answered 1 year ago

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