A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:
A) this firm is making a normal profit.
B) other picture frame companies will want to exit the market.
C) there are no other picture frame companies in the area.
D) economic profits are $1,500.
E) total profits are being maximized.

Question

Quizplus · Accepted Answer

The firm is making an economic profit because the price ($80) is greater than the average total cost ($65). The economic profit per unit is $15 ($80 - $65), and with 100 units sold, the total economic profit is $1,500 (100 units * $15 profit per unit).

A Picture Frame Company Operates in a Monopolistically Competitive Market