The figure above shows some of a firm's cost curves and its marginal revenue curve.
-The firm in the figure above is ________ that is equal to ________.
A) making an economic profit; $8.00 × 10
B) making an economic profit; $5.10 × 10
C) incurring an economic loss; $5.10 × 10
D) incurring an economic loss; ($8.00 - $5.10) × 10
E) making an economic profit; ($8.00 - $5.10) × 10

Question

The figure above shows some of a firm's cost curves and its marginal revenue curve.
-The firm in the figure above is ________ that is equal to ________.
A) making an economic profit; $8.00 × 10 
B) making an economic profit; $5.10 × 10 
C) incurring an economic loss; $5.10 × 10 
D) incurring an economic loss; ($8.00 - $5.10) × 10 
E) making an economic profit; ($8.00 - $5.10) × 10

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total cost. The firm is making an economic profit if the price per unit (not provided but implied to be higher than the average total cost) minus the average total cost ($5.10) is positive, and then this profit per unit is multiplied by the quantity (10) to get the total economic profit.

The Figure Above Shows Some of a Firm's Cost Curves