Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $6, and is earning $240 economic profit in the short run. What is the current market price?

Question

Quizplus · Accepted Answer

The firm's total revenue is equal to its economic profit plus its total cost. The economic profit is $240, and the total cost is 40 units * $6 = $240. Therefore, total revenue is $240 + $240 = $480. The market price is total revenue divided by quantity, which is $480 / 40 = $12.

Consider a Firm Operating in a Competitive Market