Suppose that you own a monopolistically competitive firm. Using the three-step method, calculate whether your company is making economic profits, economic losses, or zero profits. Use hypothetical numbers for your calculations. Do not use examples or numbers from the text.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of how to calculate a firm’s economic status using the three-step method. For example, a firm’s marginal revenue and marginal cost could intersect at a quantity of 200. Therefore, q* equals 200. At q*, the market price (P*) is $10. Thus, the total revenue is $2,000 (200 x $10 = $2,000). Finally, at q*, the average total cost (ATC) is $8. As a result, total cost is $1,600 (200 x $8 = $1,600). The firm is making a profit of $400 because the total revenue of $2,000 exceeds the total cost of $1,600 by $400.
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When a firm's long-run average cost is constant as output increases, the firm is experiencing constant returns to scale
Indicate whether the statement is true or false
Refer to Figure 17-2. Suppose the Fed used contractionary policy to push short-run equilibrium to point C. If the short-run equilibrium remained at point C long enough,
A) the economy would move back to point A. B) the economy would stay at point C in the long run. C) the short-run Phillips curve would shift down. D) the short-run Phillips curve would shift up.