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.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting total costs from total revenue. Here, the price ($80) minus ATC ($65) gives a profit of $15 per frame. Selling 100 frames a week results in a total economic profit of $1,500 ($15 profit per frame * 100 frames).

A Picture Frame Company Operates in a Monopolistically Competitive Market