**Figure 10.5** illustrates the demand, marginal revenue, and cost curves for a monopolistically competitive firm. It poses a question about the firm's economic status at its profit-maximizing (or loss-minimizing) level of output and price.**Diagram Description:**- The horizontal axis represents Quantity, ranging from 0 to about 1,000 units.- The vertical axis represents Price, ranging from $2.50 to $3.25.- **Demand Curve (D = AR):** Slopes downward from left to right, indicating a typical demand scenario where higher quantities are demanded at lower prices.- **Marginal Revenue (MR):** Also slopes downward but is steeper than the demand curve.- **Marginal Cost (MC):** Upward sloping, crossing the MR curve from below.- **Average Total Cost (ATC):** U-shaped curve, indicating economies and diseconomies of scale, and crosses the demand curve above the MR curve.**Key Points in the Graph:**- The intersection of the MR and MC curves determines the profit-maximizing quantity.- The corresponding point on the demand curve (D = AR) at this quantity level gives the price the firm can charge.- The ATC curve lies above the price at the profit-maximizing quantity, indicating that average total costs exceed price.**Question Options:**1. Be earning zero economic profit.2. Be earning an economic profit.3. Be earning an economic loss.4. Be better off shutting down since total revenue does not cover fixed costs.5. Have to expand to stay in business in the long run.Based on the graph, the firm would be earning an economic loss (Option 3), as the price (from the demand curve) is less than the average total cost at the profit-maximizing output level.

Figure 10.5 shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm. At the profit-maximizing (or loss-minimizing) output and price, the firm would: Figure 10.5. Price 3.25 3.00 2.50 0 700 Quantity 1,000 MC MR ATC D AR be earning zero economic profit. be earning an economic profit. be earning an economic loss. be better off shutting down since total revenue does not cover fixed costs. O have to expand to stay in business in the long run.

Figure 10.5 shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm. At the profit-maximizing (or loss-minimizing) output and price, the firm would: Figure 10.5. Price 3.25 3.00 2.50 0 700 Quantity 1,000 MC MR ATC D AR be earning zero economic profit. be earning an economic profit. be earning an economic loss. be better off shutting down since total revenue does not cover fixed costs. O have to expand to stay in business in the long run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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