Question

The dry cleaning industry is in monopolistic competition. In the short​ run, the​ profit-maximizing price is​ $10 per item and the average total cost is​ $6 per item. In​ long-run equilibrium, the​ profit-maximizing price is​ $8 per item. In​ long-run equilibrium, what is the economic profit of a firm in the dry cleaning​ industry? In​ long-run equilibrium, the dry cleaning firm makes ​$ nothing economic profit.

Answer 1

In the long-run equilibrium, the dry cleaning firm makes no profit. The long run equilibrium is when a firm achieves their equilibrium by adjusting their production and profit margin to accommodate the changes. The production is shown in a graph form for companies to understand where they need their sales and costs to lye to maximize profits.

Answer 2

If the average total cost is $6 per item and the price is $8 per item then the co. will make $2 per item. In the long run equilibrium the co. will make a profit in other words. If the average total cost is $6 per item sometimes it may be a little higher and sometimes a little lower so the actual profit will fluctuate accordingly.