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.Ignoring for now its long-run position, in the short run,
A) the firm makes zero economic profit, zero accounting profit, but $1,500 normal profit
B) other picture-frame companies will leave the market because it knows new firms will enter to drive price and economic profit down
C) the firm makes an $80,000 accounting profit
D) the firm makes an economic profit of $1,500
E) the market demand curve will shift to the left as more firms enter the market

Question

Quizplus · Accepted Answer

In the short run, the firm's economic profit is calculated as (Price - ATC) * Quantity = ($80 - $65) * 100 = $15 * 100 = $1,500.

A Picture-Frame Company Operates in a Monopolistically Competitive Market