Question

Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit? a. $9 b. $15 c. $30 d. $50

Answer 1

If the market price is $10, the firm's short-run economic profit is $30. The correct option is c. $30.

Step-by-step explanation:

Market Price and Quantity: In the short run, economic profit is determined by the difference between total revenue (TR) and total cost (TC). To find TR, multiply the market price by the quantity of output. In this case, TR = $10 * Quantity.

Total Cost Calculation: Total cost includes both fixed and variable costs. However, since this is a short-run analysis, fixed costs remain constant. Subtract total variable costs from TR to get economic profit.

Economic Profit Calculation: Economic Profit (EP) = TR - Total Variable Cost. Given that TR is $10 * Quantity and the total variable cost is $10 * Quantity - $20, the economic profit is $30. The correct option is c. $30.

Answer 2

If the market price is $ 10 then the firm's short-run economic profit can be found to be b. $ 15

How to find the economic profit ?

To determine the firm's short-run economic profit, identify the quantity of output at which the firm's marginal cost (MC) is equal to the market price, because in the short run, firms maximize profit by producing the quantity of output at which MC equals the market price.

The price of $10 intersects the MC curve at a quantity of 5. The ATC at a quantity of 5 is $7.

Calculate the profit per unit by subtracting ATC from the price:

= 10 - 7

= $ 3

Multiply the profit per unit by the quantity sold to find the total economic profit:

= 3 x 5

= $ 15

Therefore, the firm's short-run economic profit is $15.