If a monopolistically competitive firm is producing 7,000 units of output and at this output level, the price is $12 and the average total cost is $10, the firm profit/loss is equal to _______ and it possible ______for the firm to be in long- run equilibrium.

Question

Quizplus · Accepted Answer

To determine the profit/loss for the firm, we need to calculate the total revenue and total cost.
Total revenue = Price x Quantity = $12 x 7,000 = $84,000
Total cost = Average total cost x Quantity = $10 x 7,000 = $70,000
Profit = Total revenue - Total cost = $84,000 - $70,000 = $14,000
Therefore, the profit/loss for the firm is $14,000.
To determine if the firm is in long-run equilibrium, we need to consider whether the firm is earning normal profit (zero economic profit) in the long run. If the firm is earning positive economic profit in the short-run, other firms will enter the market to earn the same profit, causing the demand for the firm's product to decrease and the price to fall. As the price falls, the firm's profit will decrease until it reaches normal profit in the long-run. If the firm is earning negative economic profit in the short-run, some firms will exit the market, causing the demand for the firm's product to increase and the price to rise. As the price rises, the firm's profit will increase until it reaches normal profit in the long-run. Thus, we cannot determine whether the firm is in long-run equilibrium based on the information given. Therefore, the correct answer is B.

If a Monopolistically Competitive Firm Is Producing 7,000 Units of Output