1. Profit maxl n of a seller In a bagels In a monopolistically competve market.

Question

1. Profit maxl n of a seller In a bagels In a monopolistically competve market. The following graph shows its Conslder a store that produces demand curve (Demand), merginal revenue curve (MR), marginal cost curve (MC), and average cost curve (AC). Assume that the company is operating in the short run. PRICE IDollars per bagel MC AC $5.00 3.00-XI MR 200 240 270 The profit-maximizing level of output is bagels per day at a price of each. At the profit-maximizing output and price, the store's profit equals profit, which means that Given the profit-maximizing choice of output and price, the store is making there are stores in the industry relative to the long-run equilibrium

Explanation / Answer

Correct Answer:

200 bagels per day

$5 each

The profit maximizing output, MR = MC. At this level, output is 200 bagels per day and price is $5 per bagel.

Correct Answer:

Profits = Total revenue – Total cost = 200*5 – 200*4.5 = $100

Correct Answer:

Positive economic profit

Less number of stores

Here, the profit earned by the firm is positive. It means that the firm is getting revenues that is more than the cost.

Since at the long term equilibrium, there is a zero economic profit, then at present there are less number of firms in the industry. After seeing the positive economic profit, more firms will join the industry and drive the economic profit towards zero. At this zero economic profit level, the long term equilibrium will be achieved.

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