Question

COSTS/REVENUE P3 0 2 Q₁ MC Q2 Q3 Q4 QUANTITY ATC t AVC Use the graph above to answer Question 16. 16. If price is P₁, the firm will (A) produce Q, units and earn only a normal profit. (B) produce Q, units and earn an economic profit. (C) produce Q, units and earn an economic profit. (D)produce Q, units and earn an economic profit. (E) shut down.​

Answer 1

The firm will produce Q units and earn an economic profit.

Step-by-step explanation:

In this case, the firm will produce Q, units and earn an economic profit. In order to determine this, we need to find the point where marginal cost (MC) equals the market price (P₁) and then check if the price (P₁) is above the average cost (ATC). If the price is above the average cost, the firm will earn an economic profit. From the given graph and information, we can see that the price is P₁ and the quantity is Q, which is above both the marginal cost and average cost curves. Therefore, the firm will produce Q, units and earn an economic profit.